Operations strategies[3]

1. Operations Strategies

2. A look at the syllabus

3. Performance objectives
 What do we consider to be the key areas of interest
when considering our operations success?

4. Performance objectives
Objective Description
Quality Quality is a measure of excellence or a state of
being free from defects, deficiencies, and significant variations
Speed How quickly does production take and how quickly can it respond
to changes in demand?
Dependability How uniform, consistent and reliable a businesses products are.
Flexibility How quickly operations processes can adjust to changes in the
market?
Customisation Refers to creation of individualised products to meet the specific
needs of customers
Cost Minimisation of expenses so that the operations function can be
completed as cheaply as possible.

5. Performance objectives
Qantas Sales Depend Foreign
Customers Calling

6. Come up with some KPIs for each
Objective Examples of KPIs
Quality - Number of defects in production
Speed
Dependability
Flexibility
Customisation
Cost

7. Come up with some KPIs for each
Objective Examples of KPIs
Quality - Number of defects in production
- Amount of warranty returns processed.
- Awards won.
Speed - Output per hour/day/week
- lead times (time between order and delivery)
Dependability - How uniform/identical the products are
Flexibility - Variation in the output on a daily basis (can you tolerate volatile
orders?)
Customisation - Number of unique orders processed.
Cost - Total production costs
- Costs per unit of output
- Staff overtime wages level
- Total staff efficiency

8. Strategy 1: Outsourcing
 Outsourcing is the use of external providers to perform
non-core business activities on your behalf in exchange
for a fee.
 Usually this is done because they can do the tasks
required at a lower cost than you can.

9. What types of things can be
outsourced?
 Accounting
 IT
 manufacturing
 Legal advice
 Pretty much anything nowadays

10. Outsourcing video
 http://www.youtube.com/watch?v=rYaZ57Bn4pQ

11. Outsourcing – pros and cons
(p.91)
Advantages Disadvantages
- Potential cost savings
- Superior quality available from
the outsourcer because this work
represents their core competency.
- Reduced employment on-costs
(superannuation, workers
compensation insurance).
- increased accountability over the
area that has been outsourced.
- Access to skills/qualifications
that are outside the realm of the
current staff.
-By outsourcing non-core
elements of the business, it can
better focus on its core duties
and drive improvements.
- Loss of control over the
outsourced process.
- loss of ability in the outsourced
area within the company. (i.e.
Once you outsource your IT
systems, you will never be able to
reintegrate them back into the
company without great expense
and time). Loss of corporate
memory
- Organisational resistance to
change from employees
- Payback period and costs: The
first few years of outsourcing
may be more expensive as you
have to also consider the

12. Operations Strategies 2: Inventory
Management
 Inventory Management refers to the amount of stock
that a business has on hand at any particular point in
time. (raw materials, work-in progress and finished
goods).

13. Advantages of holding stock?
 Consumer demand can be met immediately. Less chance
they will leave the premises and buy from somewhere
else.
 Reduces lead times between order and delivery of
product
 Making purchases in bulk can reduce the cost price per
item. These big purchases need to be warehouses
somewhere, hence stock is accumulated.

14. Disadvantages of holding stock?
 Numerous costs including : leasing the facility,
insurance, theft and handling expenses, security costs,
obsolescence (if can’t be sold),
 Stock represents cash tied up and not earning any
interest.

15. HOW THE HELL DO I CALCULATE MY PROFITABILTIY FOR THE
SALES I MAKE?!!??!!
Valuing Stock
A petrol station takes
TWO fuel deliveries per
week.
Delivery 1] The cost they
paid was $1.45 per litre
for 500,000 litres.
Delivery 2] The cost they
paid was $1.10 per litre
for 200,000 litres

16. Valuing Stock
http://www.youtube.com/watch?v=ExNsF
h0_39s (LIFO vs FIFO)

17. Inventory valuation methods
Step 1) JB HIFI bought 3 X-boxes at the cost of $500 each in the first
delivery.
THEN
Step 2) JB HIFI bought another 5 X-boxes at the cost of $400 each in the
second delivery.
STEP 3) A customer comes up and buys an X-box for $450 from you. How
much profit does JB-HIFI make?

18. LAST IN FIRST OUT (LIFO) Method
One method that can be used is called the LIFO method.
This method of valuing inventory assumes that the last batch order of
goods are also the first goods sold and therefore values the cost of this
number of units sold at the cost of the last batch purchased.
E.g. The last delivery of 5 X-boxes are assumed to be sold first, and as a
result the first 5 X-boxes sold will all be costed at $400 each.
The remaining 3 X-boxes will be costed at the previous cost price $500
Cost Price $ 500 each
Cost price = $400 each

19. FIRST IN FIRST OUT (FIFO) METHOD
Another method that can be used is called the FIFO method.
This method of valuing inventory assumes that first batch of goods
purchased are the first goods sold and therefore values the cost of this
number of units sold at the cost of the first batch purchased.
E.g. The first delivery of 3 X-boxes are assumed to be sold first, and as a
result the first 3 X-boxes sold will all be costed at $500 each.
The remaining 5 X-boxes will be costed at the previous cost price $400
each.
Cost Price $ 500 each
Cost price = $400 each

20. FIRST IN FIRST OUT (FIFO) METHOD
Cost Price $ 500 each
LIFO PROFITABILITY FIFO PROFITABILITY
5 units sold at cost price of $400 each
and sale price of $450 each.
There is a total profit of $250
3 units sold at cost price of $500 each
and sale price of $450 each.
There is a total loss of $150
The last 3 units then sell at a cost of
$500 each and sold at the sale price of
$450 each.
Therefore there is a total loss of $150.
The last 5 units then sell at a cost of
$400 each and sold at the sale price of
$450 each.
Therefore there is a total profit of $250.
Overall profitability = $100 Overall Profitability = $100

21. Some general conclusions• The overall profitability will be identical over a long enough time period.
• However, the different methods will produce different results in the short-
term.LIFO PROFITABILITY FIFO PROFITABILITY
5 units sold at cost price of
$400 each and sale price of
$450 each.
There is a total profit of
$250
3 units sold at cost price of
$500 each and sale price of
$450 each.
There is a total loss of $150
The last 3 units then sell at
a cost of $500 each and sold
at the sale price of $450
each.
Therefore there is a total
loss of $150.
The last 5 units then sell at
a cost of $400 each and sold
at the sale price of $450
each.
Therefore there is a total
profit of $250.
Overall profitability = $100 Overall Profitability = $100
Early on
there is
Big
difference
in
profitability
Eventually
it sorts
itself out.

22. Some general conclusionsLIFO FIFO
-Because the cost of goods tend to rise
throughout the year, the LIFO method
tends to overstate the cost and
understand the profit in the current
period.
-- Because the cost of goods tend to rise
throughout the year, the FIFO method
tends to understate the cost and
overstate the profit in the current
period.
- Most businesses use this because it
makes sense to try and sell your oldest
inventory first you are able to identify
them as older stock (especially if
inventory can perish).
- They also prefer this method because
it usually produces a higher profitability
result in the near term if we assume
that the goods become more expensive
over time.***
***Note: the opposite effect has happened in our example because the X-box
falls in price over time. It is an unusual circumstance.

23. Just in Time – Inventory method
 An inventory management system that ensures that the
exact amount of material inputs will arrive only as they
are needed in the operations process.
 Benefits include
 Easier to conduct stock take (less stock on hand)
 Retailers can display a wider range of products because
they do not have to stock as many duplicates
 Saves on all stock related expenses mentioned earlier