Operations Management For A Sustainable Future By Ian Biddle Lecturer: Business Studies Method, University of Western Sydney Previous: Head Teacher, Social Science, Jamison HighIntroduction Dynamic OperationsPractically all the goods and services that we consume are the The goal of business operations is to produce output that has aresult of operations where inputs are processed to produce sustainable demand. Thus a business has to create a perceptionutility products. These operations affect the environment in with its target market of an advantage in terms of:a variety of deliberate and accidental ways. This is not new. 1. Cost leadershipMaoris hunted the moas to extinction, Aboriginal fires modified 2. Product differentiationforest eco-systems, and pre-Roman Cornish tin mines alteredthe landscape. When Abraham Darby began using coal based In order to maintain both product and price advantages theiron furnaces at Coalbrookdale in 1709 he started a series of product and production methods are continually monitored andevents that radically changed the world. redesigned. University students are now being taught differently to those in the past and the types of communications we useWhat is relatively new however, is the scale, scope and impact are constantly changing. Operations are dynamic. Businessof operations, the change due to: managers adapt their operation methods in response to:• Rapid increases in population • Political actions• Technological change • Economic influences• Increased consumerism • Social pressures• Expanding Asian economies • Technological changeThe production of goods and services requires the collection A business for example would change its product andand processing of raw materials such as minerals and timber, the production methods in response to: more effective machinery,production of power and fossil fuels, transportation of products increased foreign competition, change in interest rates,and people and the production of waste and its disposal. economic downturns, new pollution laws and changingAs Kenneth Boulding stated in 1966 in Spaceship Earth, the consumer tastes. These P.E.S.T. factors will often act togetherworld is a closed system, resources are not limitless and pollution or maybe in conflict. Using new technologies may maximiseand waste cannot be ‘lost’. Operations do have a consequence. profits but it may stress the environment and/or exploitThe consequences have negatively impacted on the environment employees. Social and political pressures then come into play.and will surely impact upon the quality of life of our In the 19th century many business interests argued that thedescendants. The traditional concept that the environment is abolition of slavery and child labour would be financiallylimitless and is there for our use is being questioned. Social and disastrous. Some people now argue that the introduction ofpolitical pressures aiming for long term sustainability have, and environmental measures will have a similar effect. It wouldwill continue to alter the ways in which businesses design and however, be unfair to say that businesses in general arecarry out their operations. reluctant to adopt responsible operations. Much of the changeFigure 1: The operation process and system. The elements of the operation process and operation are linked and related. Operations Processes Operations strategy Inputs Transformation • materials Outputs Process • information • products Design • human resources Value added Value added • services Improvement • customers • waste Planning and control • facilities Satisfied customer Controls ~2~
in products and methods has been partly due to aspects of Figure 2: hareholder intentions following particular SCorporate Social Responsibility (CSR). company actionsSTUDENT ACTIVITIES Action Keep Sell Shares shares1. How does a business’ operations affect the environment? Causing a major environmental problem 29% 71%2. Identify the accidental impacts of business’ operations. Using child labour 12% 88%3. Give two examples of deliberate impacts of business on the environment. Paying executives large bonuses 40% 60%4. Describe the process of producing goods and services. Involved in racial discrimination 51% 49%5. Outline the consequences of business operations on a closed Source: Author (adopted from Horsley et al) system.6. Give examples of the social and political pressures aiming for Shareholders (and probably society as a whole) increasingly sustainability, take a negative view towards delinquent businesses in7. How do these pressures alter business operations? environmental matters. They see it as being more serious than8. Discuss how target market perception of a business or product is racial discrimination for example. important.9. What is meant by the statement ‘operations are dynamic’. Achieving Sustainability10. Referring to a business you know or have studied, identify its PEST factors. Most people believe that sustainable operations are essential. Fossil fuels and minerals are being depleted and alternatives are not beingVocabulary/concepts adequately developed. Forests and fish are not being adequatelyDefine each of the following terms in their correct business context: replaced, soil and water are being degraded and pollution andoperations, technological change, consumerism, fossil fuels, waste are having negative impacts on ecosystems and climate.sustainability, cost leadership, product differentiation, political actions,social pressures, corporate social responsibility. Figure 3: he causes of this are related to both demand T and supply factors. Demand Factors Supply FactorsThe Concept Of Sustainability • Rapid increase in • Increased dependence on fossil fuelsThe Australian Conservation Foundation suggests that 82 per world population • New technologiescent of Australians believe that the current industrial and farming • Rising consumption • Production methods relying on wastepractices are making climate change worse. The belief is that by levels and product disposaladapting the environment to suit ourselves we have unleashed • Rising world living • Resources and methods are are notforces that we did not forsee and seem unable to change. As a standards realistically pricedconsequence sustainability has become a new theme. Source: Author Businesses are more responsible for supply factors but Sustainability: Keeping within critical limits over time, achieving sustainability will need new approaches on both sides. the relationship between society and the physical milieu. (Vickers 1997) One of the main reasons for unsustainability is that the price paid for fossil fuels, minerals, water and timber are far too lowSustainability has a range of applications. Some would and thus consumption is excessive. Economists consider this ansuggest that it simply means maintaining output to match example of market failure. The Stern Review believed that thegrowing demands; others have a stewardship view and stress main cause of climate change was market failure due to underan ecological balance whilst others have a community view costed environmental externalities.highlighting the importance to maintain a desirable way oflife into the future. A broad concept incorporates all views and STUDENT ACTIVITIESoutlines that we interact with the environment in such a way that 11. The author lists five items on society’s wish list. Why does societythose future generations will not be disadvantaged. wish for these things?Certainly economic activities associated with farming, 12. Explain why shareholders may find environmental harm more negative than racial discriminations when it comes to the activitiesmanufacturing, power generation, transportation and construction of business?have changed the nature of things. Society does enjoy the benefits 13. Debate: Sustainable business operations are essential.of these activities but does wish for the following things: 14. What new approaches could business’ take to achieve sustainability?• A reduction in the environmental impact of economic 15. Outline the main reason for unsustainable business practises. activities 16. Why is the price for fossil fuels, minerals, water and timber too low?• A better use of natural resources Vocabulary/concepts• Effective waste management systems Define each of the following terms in their correct business context:• Elimination of potential hazards industrial, stewardship, and ecological.• The production of safe productsWhether present steps towards these goals are enough to achieve Externalities: These are the costs (or benefits) that are paidlong term sustainability is debateable and securing sustainability by parties not directly involved in the production process.for a sustainable society may require a radical rethink in terms Market prices do not reflect the true price of producing andof our types of economic activities and our political processes. consuming. These costs are not internalised (paid for) byCan we have our cake and eat it too? the producer. ~3~
There are positive externalities, for example, the bees of the Business Responsehoney producer help pollinate the orchardist’s trees, but most Business operations will be greatly impacted by the increasedexternalities are negative. The production of electricity, fuel, focus on sustainability. Managers will need to:transport, paper products and appliances do incur costs to 1. Comply with legislation relating with rules and regulationsthe producer which are in turn incorporated into the price; 2. Become proactive and develop environmentally soundhowever massive direct and indirect costs such as pollution practices in response to internalised costsare borne by the wider community and future generations. Ifthe real costs had to be paid, people designing products and German manufacturers for example have to comply, and beoperational processes would use less and seek alternatives such responsible for, the final disposal of their products, whilstas renewable energy. companies such as Amcor according to Managing Director Ken McKenzie are committed to new processes and products beyondInternalising these costs (having the producer pay the real compliance requirements.price) is difficult. How is the cost calculated, how is it paid,who pays and how is it enforced? Two broad approaches have Amcor, the Australian based manufacturer of plastic, fibre,been developed (see Figure 4). metal and glass packaging products operates in over 300 sites(a) Regulations and sanctions, for example rules, restrictions, in 43 countries, employs 35,000 workers and has annual sales fines and court action of $12.2B. Packaging companies are vital for sustainability,(b) sing the market system, for example taxes and emission U packaging is often criticised for its environmental impact trading and less packaging would have less direct impact, but poor packaging can result in waste and spoilage.Both approaches (a) and (b) are used. There will always be arole for regulation and penalties; however, user pay taxes and Figure 5: ome of the issues Amcor considers when S designing and manufacturing packaging are:emission trading are seen as the best ways to induce changetowards sustainable consumption and environmentally friendly Stage Issuesbusiness operations. 1. esource extraction R Sustainable sources of fibre, recycling and sourcing and biopolymer inputsSTUDENT ACTIVITIES 2. ackaging P Environmental design, life cycle17. Differentiate between positive and negative externalities and give manufacturing assessment, renewable energy, examples of each. enviroaction targets18. Discuss the view that says ‘if the real costs had to be paid, people 3. ustomer product C Collaboration and interaction with designing products and operational processes would use less and manufacture customers seek alternatives such as renewable energy’. 4. istribution and D Packaging efficiency and light19. Why is taxation and emission trading seen to be the best way to warehousing weighting induce change towards sustainability? 5. Retail Information about packagingVocabulary/concepts sustainabilityDefine each of the following terms in their correct business context: 6. Consumers Communicating about packaging,internalising costs, regulations, sanctions, emission trading. sustainability impacts and benefits 7. End of life Recycling, compositing, landfill and incineration Source: AuthorFigure 4: Dealing with market failure in resource use Method Explanation examples (a)1. olluter to pay for P The polluter is forced through court action or fine to pay • Union Carbide at Bhopal ($470million damaged caused for damage caused by their actions. The money is a paid, Indian Govt sought $3billion) compensation for losses and a warning to other businesses. • Exxon Valdez in Alaska The amount paid is usually far less than the damage caused • B.P. in the Gulf of Mexico and many stakeholders are ignored. • Fines for unclean restaurants (a)2. egulatory limits, R Potential polluters are restricted from certain actions that • The Alkali Act 1862 rules and bans may cause environmental damage. Fines can be imposed. • The Clean Air Act 1956 Particular environmental damaging practices are avoided and • nti-dumping laws A businesses need to invest in less damaging practices and • Car emission regulations methods. • Irrigation quotas (b)1. tax imposed upon A The tax can be levied at different points, for example • carbon tax to limit the use of A the polluter production, distribution or consumption. The tax as a cost aims hydrocarbons (Sweden) to limit emission, seek less harmful alternatives and help pay • Container recycling fee (Delaware) for environmental restoration • Petroleum Tax (Quebec) (b)2. mission Trading E The environmental regulator sets a limit for emissions. This • The Carbon Pollution Reduction (Cap and Trade) is divided into tradeable credits and these are distributed to Scheme (CPRS in Australia) participant businesses. Businesses that use less than their • Emissions Trading Scheme NZ quota will sell excess credits to businesses that exceed their • Emissions Trading Scheme EU quota. There is thus an incentive to find ways to produce fewer • Acid Rain program US emissions. Trading can take place between nationsSource: Author ~4~
Figure 6: How does emission trading work Business A Business B Payment in return for $$$ transferred Quota Unused Transferred Allocated Quota Quota Actual Emission Quota Quota Actual Allocated (credit (credits) amount Emission used) used QuotaBoth businesses have an incentive to develop more environmentally friendly operations as less has to be paid in buying credits andrevenue can be raised from transferred surplus quotas. Business A is already receiving these benefits.Source: AuthorFigure 7: Ecocentric Approach v. Technocentric Approach Ecocentric The way forward is through a sustainable Technocentric economy. Natural ecological processes are allowed Human ingenuity and technology will solve all to flourish. There is an assumption of zero economic and vs problems. A greener business approach will provide population growth, and strong community interaction. the solutions for a continually expanding economy There is a move away from technological and capitalist solutionsSource: AuthorExamples of Amcor’s achievements in its sustainability Some things are certain however; the world cannot continueprogram include: to consume at its present rate and patterns of individual and• In its production process greenhouse gas emissions are group consumption need to be reassessed. Businesses will face 3.4 per cent below 2005 levels. An example includes the an increase in the number of environmentally focussed rules new incinerator at Maddison, Wisconsin and regulations and they will be forced to internalise a great• Water collection methods have provided water for many environmental costs by a mechanism such as carbon taxes operations and organisations such as the Melbourne Zoo and emission trading. Businesses will be forced to design new• Industry forums are conducted worldwide to inform products and develop new operational methods. Perhaps close customers about sustainable packaging. An example is interaction between business, consumers and environment is an the Wal-Mart Sustainable Packaging Expo idea whose time has come.• Develop with customers more sustainable containers, an example being the 100 per cent post consumer recycled STUDENT ACTIVITIES P.C.R. bottles for McCormick Distilling 20. Analyse the impact on business operations of an increased focus• Completed over 800 packaging life cycle assessments on sustainability. for customers Vocabulary/concepts• Works with Governments and industry to develop such Define each of the following terms in their correct business context: things as the national packaging covenant. eco centric, techno centric.Everything a company does affects its profitability. Redesigningprocesses to obey regulations and avoid added costs is Referencesexpensive. However, being proactive in terms of sustainable Blair, Alasdair, 2000, Environment and Business, Routledge, London.operations enables a business to be part of the solution and Gambourne, David, 2000. Waste Minimisation as a Strategic Weapon, Lewishelps them better plan for the long term and as well develop Publishers, New York.better relationships with customers. Horsley, Michael, 2011 Business Focus: HSC, Pearson, Pt. Melbourne. Megginson, Leon, 1999, Management, Harper Collins, New York. Pigou. A.C., 1920, Economics of Welfare, Macmillan Co. London.Towards A Sustainable Future Stern, Nickolas, 2006, The Economics of Climate Change, U.K. Treasury,Are business operators and an environmentally concerned London. Stowell, Frank, 1997, Systems for Sustainability, Plenum Press. New York.society going to be cosy bedfellows or be implacably opposed? Amcor, Sustainability Report 2010, www.amcor.com, 21/12/2010.Historically there has been tension between the values of Australian Conservation Foundation, What does a price on pollution mean?society and the practices of business. There exists still a wide www.acfonline.org.au 6/1/2011.gulf between those who see an eco centric approach to the Australian Government, Carbon Pollution Reduction Scheme, www.future and those who believe in business as usual and who climatechange.gov.au 6/1/2011. Total Environment Centre, Litter study highlight, tec.org.au 11/1/2011.would rely on a techno centric fix (see Figure 7). ~5~
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