The Impact of External Factors on Operations Management

Operations management refers to the administration of business practices to create the highest level of efficiency possible within an organization. Operations management is concerned with converting materials and labour into goods and services as efficiently as possible to maximize the profit of an organization. In order to be successful, operations management must successfully deal with a range of external influences that impact on operations. The eight main influences on operations management are globalization, technology, cost-based competition, quality expectations, legal regulation, environmental sustainability, government policies, and corporate social responsibility (CSR). These external influences represent threats and opportunities to operations management. If operations management can successfully navigate these influences then they can become a valuable asset for the business. However, if operations management fails to adapt to these influences then they can severely hinder business performance. Qantas and Kmart are two companies that have demonstrated the level of adapting to these external factors, which have allowed their businesses to progress successfully. Qantas is the flag carrier of Australia and is the largest airline by fleet size and Kmart is a deep-discount retail store operating in 228 stores across Australia and New Zealand.

Businesses operate in a dynamic and highly competitive global environment, which has a significant impact on the operations strategies used by businesses. Globalization refers to the removal or trade barriers between nations resulting in the integration of different national economies into a single market where goods and services can be traded easily. Globalization has created many opportunities for Australian businesses to expand into overseas markets. Kmart has achieved this by outsourcing to China, Bangladesh, India, and Turkey, establishing business operations where it is cheaper to produce. Globalization has allowed Kmart to achieve cost savings through achieving a global supply chain and creating higher profit. Businesses can also lower their prices as a result of the lowered production costs, leading to a competitive advantage and an increase in market share and overall sales and thus increasing profit levels. New technology presents widespread opportunities for businesses to make new kings of products, and add new features to old products. Technology has enabled operations management to produce exciting new products. These new products can either revitalize a declining business or give an already successful business a further competitive edge. For example, technology has allowed the operations management at Qantas to add various new features. Some of these features include automated processes, such as self-serve kiosks. Self-serve kiosks have boosted sales and therefore increased profits due to the made easy and convenient process of traveling. Technology has also assisted Qantas in newer, more efficient, and higher-quality planes, which are reducing running costs while improving the quality of service. In response to this, operations management researches consumer demand to see if consumers want products that are stocked full of technology or if they prefer the original product, to ensure an increase in demand.

Cost Based Competition emerges when businesses compete on their prices. This is best seen when competing businesses are focused on cost leadership and are therefore trying to drive down expenses and pass the savings onto consumers. If a competitor lowers prices, operations management must find ways to ensure the business lowers its prices as well, to be competitive. Kmart, for example, has encompassed this strategy of cost-based competition into its operations management systemized of intermediaries, leading to benefits of high-volume products at the lowest costs. This has led Kmart to increase sales and profits, within 3 years they have increased profits from $0 to over $200 million. In response to this, operations management must be able to reduce costs when required so they do not lose any competitive advantage or market share. On the other hand, businesses must be careful that they are not cutting prices too much, as this can lead to lower-quality products. Consumers have quality expectations, and management that is more concerned with reducing costs may look over these quality issues. The labor overseas in developing countries such as Asia may be cheaper, however, may not be as skilled as the labor here in Australia. This results in lower-quality products, which leads to decreased sales, therefore lower profits. The decreased quality of the outputs may also force the business to drop the prices of its products in order to stay competitive, however, this will lower the profit per sale and thus reduce overall profits. Qantas ensures they are meeting their consumer's quality expectations through their durability, reliability, and fit for purpose. Factors that contribute to this involve arriving and departing on time and ensuring the comfort of their customers, such as, in-flight entertainment, and service attendants. In order to ensure that the quality of the product is up to standard, operations management employs quality control techniques such as regular checks of the production process to maintain maximum quality.

All businesses are required to meet their legal regulations, comply with all applicable laws, and promote safe and fair practices by businesses. This may involve Workplace Health and safety, environmental protection or consumer protection. However, it is up to the business whether they meet these laws and regulations. For example, Kmart has employed an OHS Manager and national safety and injury service manager to constantly update their safety strategies, and to ensure their employees are working in a physically and mentally safe environment. An influence that has come to prominence in recent times is Corporate Social Responsibility (CSR). CSR refers to open and accountable business actions based on respect for people, the community/society, and the broader environment. A business manager that takes CSR into account places importance on social responsibility and environmental sustainability, rather than just profits. Qantas and Kmart both support charities and local community events. In 1987, Kmart started the Kmart Wishing Tree appeal, where they receive and distribute gifts to less fortunate kids, turning out to be Australia's largest and longest-running Christmas gift appeal.

Environmental Responsibility involves the development and use of production methods which use resources efficiently, such that those resources will not be depleted for future generations. Such practices aim to prevent waste and pollution. Today consumers are more aware of the environmental impacts of their purchases, and thus, businesses must adopt sustainable practices to increase support and encourage sustainability. For example, Qantas consumers expect sustainable practices on the part of the airline. Qantas’ new A380 jets were designed with more fuel-efficient engines. Moreover, in 2012, Qantas and Jetstar adopted the use of biofuel, resulting in 60% less carbon emissions. Government Policies encourage innovative business operations, as well as safe and competitive behavior by businesses. This helps guarantee economic performance and growth. Government policies that affect Qantas include the Fair work act which guarantees certain employee rights, thus increasing operating costs. Deregulation of once exclusive airline routes has resulted in more competition and fewer profits, and Carbon tax which cost Qantas millions every year.

In conclusion, there are various factors that influence the operations management of businesses. These factors if approached correctly are opportunities for the business to increase their sales and profits, their market share, and improve their public image. However, if a business fails to correctly approach these factors then they can influence the business in a negative way by decreasing market share, sales, and profit levels and reducing the business's reputation. It is therefore essential to have an operations management that is efficient and highly skilled so that they are able to adapt to change and react to these factors in the correct way or risk a business failure.