Operations Strategies OUTSOURCING! PERFORMANCE OBJECTIVES! TECHNOLOGY! INVENTORY MANAGEMENT! OVERCOMING RESISTANCE TO CHANGE! NEW PRODUCT DESIGN AND DEVELOPMENT! SUPPLY CHAIN MANAGEMENT!! GLOBAL SOURCING! QUALITY MANAGEMENT
Quality Management Syllabus: Strategies - quality management Quality has a number of different ideas. For a consumer it can mean that the product provided by a business:! -lasts for a long time! -is free of any defects! -does everything that advertising claims.! For a customer-focused business, quality also means that each and every good made or provided by the business is consistent in its quality.! For service-based businesses, quality will be measured in terms of satisfactory customer service.
Quality Management To achieve a competitive advantage over other businesses in the same market a business may choose, as its performance objective, to have products of a superior quality.! If not superior quality, a business will strive for a minimum level of quality.! This is because poor quality is an operational cost. Customer returns, poor service, product recalls and repairs as well as being a significant expense will also damage the brand value of the business (the reputation).
Quality Management There are three aspects to quality management:! control! assurance! improvement
1) Quality Control Syllabus: Strategies - quality management - control Quality control is concerned with minimising the variations to defined limits and them building systems and procedures to ensure those limits are never exceeded.!! CASE STUDY: The Coca Cola Amatil factory in Northmead have set limits of 2ml either side of 375ml. A can that is filled to 373 ml is acceptable, but a can filled to 372ml is not. A laser beam measures each can and trips an eject mechanism if the can fails to meet the specification.
1) Quality Control In other words...!! Checking things meet the level of quality required WHILE they are transformed
2) Quality Assurance Syllabus: Strategies - quality management - assurance Quality assurance involves putting into place systems and procedures that make sure an error or fault will not happen.! CASE STUDY: A restaurant storing fresh meat at below 4 degrees Celsius will prevent salmonella bacterium.! The important thing about quality assurance is that it provides managers with the confidence that they can produce a quality product all the time.
2) Quality Assurance In other words...! Developing the transformation process in a way to reduce problems that could be picked up by quality control.
Revision DISTINGUISH between quality control and quality assurance, giving an example of each.!! LIST the eight influences on the operations process
3) Quality Improvement Syllabus: Strategies - quality management - improvement Achieving higher levels of customer satisfaction requires a commitment from every employee to not only avoid mistakes but improve the way they do their jobs.! There are several approaches to improvement, one being T Q M.! TQM is a philosophy that focuses on developing a business culture that recognises the importance of quality and seeks continuous improvement in quality performance.! QUESTION: How would TQM improve customer satisfaction?
3) Quality Improvement In other words...! If everyone is looking to IMPROVE the way they do things... then you won t make mistakes!!
Operations Strategies OUTSOURCING! PERFORMANCE OBJECTIVES! TECHNOLOGY! INVENTORY MANAGEMENT! OVERCOMING RESISTANCE TO CHANGE! NEW PRODUCT DESIGN AND DEVELOPMENT! SUPPLY CHAIN MANAGEMENT!! GLOBAL SOURCING! QUALITY MANAGEMENT
Inventory Management Case Study: Toyota unable to continue production because a supplier of semi-finished inputs went on strike.! Inventory is also needed in most service operations. Purchasing car insurance is a service; the operations function will need things like brochures to explain the service to customers and printed agreement forms that will be signed when the customer purchases the service.
Inventory Management Advantages of holding stock Buying in bulk... Provides a buffer... Disadvantages of holding stock Storage... Obsolescence... Shrinkage...
Revision Define total quality management! In Operations Management, what is meant by the term shrinkage.! What does the term obsolescence mean?! Outline two advantages of holding stock.
Inventory Management I order leather belts from Italy to sell in my boutique clothing store in Bondi Junction.! I ordered 30 belts in April this year, paying $15 per belt. Over the next three months I sold 25 of these belts for $60 each. I then ordered 40 more belts in June, paying $18 per belt. Over the next three months I sold 30 of these belts for $65 each.! HOW MUCH REVENUE HAVE I MADE IN THE SIX MONTHS SINCE APRIL?
Inventory Management I ordered 30 belts in April this year, paying $15 per belt. Over the next three months I sold 25 of these belts for $60 each. I then ordered 40 more belts in June, paying $18 per belt. Over the next three months I sold 30 of these belts for $65 each.! HOW MUCH REVENUE HAVE I MADE IN THE SIX MONTHS SINCE APRIL?! 25 x 60 =! 30 x 65 =! TOTAL REVENUE =
Inventory Management What is the formula for GROSS PROFIT?
Inventory Management What is the formula for GROSS PROFIT?! REVENUE - COGS = GROSS PROFIT!! HOW DO I CALCULATE COST OF GOODS SOLD?! I ordered 30 belts in April this year, paying $15 per belt. Over the next three months I sold 25 of these belts for $60 each. I then ordered 40 more belts in June, paying $18 per belt. Over the next three months I sold 30 of these belts for $65 each.
Inventory Management HOW DO I CALCULATE COST OF GOODS SOLD?! I ordered 30 belts in April this year, paying $15 per belt. Over the next three months I sold 25 of these belts for $60 each. I then ordered 40 more belts in June, paying $18 per belt. Over the next three months I sold 30 of these belts for $65 each.! 30 belts x $15 per belt = $450! 40 more belts x $18 per belt = $720! TOTAL COST OF GOODS SOLD = 450 + 720 = $1,170! GROSS PROFIT = $3,450-1,170 = $2,280
Inventory Management! REVENUE - COGS = GROSS PROFIT! $3,450 - this can t change
Inventory Management! REVENUE - COGS = GROSS PROFIT! BUT there are simpler ways to calculate the cost of the goods you have sold:! FIFO (first-in-first-out)! LIFO (last-in-first-out)
FIFO (first-in-first-out) All goods sold are based on the cost of the FIRST inventory bought so in this case! I ordered 30 belts in April this year, paying $15 per belt. Over the next three months I sold 25 of these belts for $60 each. I then ordered 40 more belts in June, paying $18 per belt. Over the next three months I sold 30 of these belts for $65 each.! 30 belts x $15 per belt = $450! 40 more belts x $15 per belt = $600
FIFO (first-in-first-out)! TOTAL COST OF GOODS SOLD:! 450 + 600 = $1,050! GROSS PROFIT = $3,450-1,050 = $2,400! Actual Gross Profit we originally calculated:! $2,280
LIFO (last-in-first-out) All goods sold are based on the cost of the LAST inventory bought so in this case! I ordered 30 belts in April this year, paying $15 per belt. Over the next three months I sold 25 of these belts for $60 each. I then ordered 40 more belts in June, paying $18 per belt. Over the next three months I sold 30 of these belts for $65 each.! 30 belts x $18 per belt = $540! 40 more belts x $18 per belt = $720
FIFO (first-in-first-out)! TOTAL COST OF GOODS SOLD:! 540 + 720 = $1,260! GROSS PROFIT = $3,450-1,260 = $2,190! Actual Gross Profit we originally calculated:! $2,280
Inventory Management! REVENUE - COGS = GROSS PROFIT! So, in review:! Actual Gross Profit = $2,280!! FIFO (first-in-first-out) = Gross Profit $2,400 (more profit)! LIFO (last-in-first-out) = Gross Profit $2,190 (less profit)
Revision In Operations Management, what is meant by the term shrinkage.! What does the term obsolescence mean?! Outline two advantages of holding stock.! Distinguish between the inventory valuation methods of LIFO and FIFO
Just-in-time inventory approach Syllabus: Strategies - inventory management - just-in-time JIT inventory management is a concept that focuses on eliminating waste - a cost to business. JIT aims to only produce enough products to meet demand. Advantages 1) Lower warehousing costs! 2) Less shrinkage! 3) Less obsolescence! Disadvantages 1) Requires flexible operations function - if a business cannot respond to changes in demand in time, they will lose sales! 2) If suppliers are unreliable, the operations process will break down. WHY?!