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Operations management is a key function in any organization. It oversees the end to end execution of activities by establishing of processes and monitoring them to see that the desired outputs are received in synchronization with the overall objectives of the company.This Unit 34 Operation Management in Business Assignment is to provide learners with an understanding of the role and importance of operations management (OM) in the efficient and effective production of goods and services.
Any organization can satisfy customer needs through physical products as well as services. Departments across the organization work with a specific objective in mind. For example, the Marketing Department works to reach the consumers and identify their needs, generate demand for the products (Horvathova and Davidova, 2011). The HR department may work to harness a healthy culture, identify capable human resources. Operations, however, binds all these departments in their functions and right from the source to the delivery it plays an important role in the transformation or transforming process. Let us first understand what operation entails.
Products or services for the consumers require a transformation from the input to the output stage. Sourcing of the raw materials and processing them to finally arrive at a product that the consumer needs is one subtle example of the transformation process. At all stages of this transformation process, the human resources intervene. They are the ones who enable this transformation. Operations also entails using the human resources through set of defined or continuous refinement of existing processes so that the end result exceeds the expectations.
The robustness of this transformation process determines how aligned the organization is with its mission, vision, long term and short term goals. Transformation of raw material into processed goods of value, or transforming human resources, equipment or anything that helps in this transformation of raw material into usable products (or services) can be suitably attained through effective operations management. Operations thus comprises of defining systems and processes for the organization, creation of effective monitoring and controlling mechanism to test the robustness of the processes. Based on the consistent feedback, operations management helps in fine tuning the processes of transformation of raw materials or transforming of human resources and equipment that enables this transformation to accurately align with the objectives of the organization.
Assuming a furniture supplier organization which supplies furniture to various retail outlets, let us analyse the nature of operations to be undertaken. The retail outlets would provide the feedback pertaining to the nature of demand coming from the consumers. They would also report about the problems and pain points the customer faces. Based on the retail scenario product management would think of producing furniture based on the needs (Schuler & Lawser, 2007). This would require adequate but not excessive procurement of raw materials, human resources management that would help in the transformation of the raw materials into finished goods, fixed assets such as factories, equipment, tools, warehouses and logistics capabilities.
Operations in a furniture supplier organization would require establishing processes and controls for a smooth run in alignment with the market requirements to attain the organization’s objectives of being the preferred choice for the consumer in the category and being a market leader with a 50% market share (assumption).
Operations Role in:
Monitoring and Control
Hiring staff for
Factory, warehouse – Labour, supervisor
Business Development Team
Measuring productivity of employees; check on employee ideal rate;
Ensuring high quality;
Promotions, scheme for retailers, demand generation
Efficient and effective delivery;
Check on cost of inventory;
Check on Dead stock;
Optimized and quality raw material;
Low inventory costs;
Feasible liquidation plans;
Areas near suppliers;
Fixed assets to strongly aid transformation into finished furniture goods.
Deploying Business Development team in identifying strong and influencing retailers.
Suggestion of right ambience within the retailing space to the retailer.
Right mix of Retail outlets for the target consumer.
In house delivery
Delivery times; Damaged goods proportion
Timely delivery; low damages.
In a furniture supplier company, the operations would be divided into a pre-production, production and post- production phase. During the pre-production plan the necessary resources are assessed and allocated. For example, assessment of the space of the premises required for production, the number of work force required the quantity and quality of raw material required, space for storage and the logistics handling.
During the production process, the allocated resources are used to transform the raw material into the finished goods which is supplied to the retail outlets in the final phase of post-production (Forza, 2002). In the post production phase the packaged goods are delivered to the retailers who on the basis of the demands for the furniture products sell the packaged products to the consumer.
The process model emphasizes on the flow of the activities and how every activity has to be completed to reach the final delivery stage which would best be called as the transformation stage where the inputs that were put in at several stages reach a final outcome stage in the form of product or service for the consumer.
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The primary objective of operations in an organization is to ensure that the transformation of input to output must be effective (to ensure that the quality of the output received meets or exceeds the expectations), efficient (the productivity of the input elements must be high, or the resource allocation and utilization must be optimum), and must conform to the scale of economy to ensure that the profit is maximized within the constraints of the costs involved that in itself will reduce due to effectiveness and high efficiency standards (Zott et al., 2010).
In a furniture supplier organization, for example, the allocation of the optimum number of resources in the factory unit working over the machines (neither too high nor too less), timely upgrades to machines and tools, adequate supply of raw material, low inventory holding costs, timely delivery to the retail outlets through proper logistics in place (outsource or internal) and other such factors will determine for the furniture supplier organization, its’ effectiveness in meeting demand in a timely manner, its’ efficiency through the ideal time of the man or machines, and its proximity to the suppliers and other external factors such as the cost of labour, cost incurred on high ideal times of labour or machine and logistics’ delivery costs that will define its economy. These three would in turn determine the alignment of the operations function with the strategic objectives of the organization. Thus, efficiency, effectiveness, and economy are the three ‘E’ that characterize an organization. These determine the robustness of the organization. Building of systems, monitors and evaluators can be tested for their capability in bringing about an improvisation in these three critical aspects – efficiency, effectiveness and economy. Improvement in one factor may have a direct or indirect influence on either of the other two, or both the factors at the same time.
The customer is very demanding; any expectation unmet in the product or a minor defect or decline in the product quality may make him switch over to a new brand. Slight improvement or an added feature in the product by a competitor may again take the customer away (Zaklouta, 2011). A good brand cannot afford to be bad mouthed by the customer and must not decline quality of the offering. The market, thus, is extremely competitive. Constant spikes in cost of raw materials, unpredictable vendors, short supply of good quality material and increasing pressure to achieve bottom and top line, all result in a tug of war between maintaining of margins for achieving business objectives and appeasing the customers by constantly offering superior products in comparison to the rest of the competitors.
Maintaining this balance between quality and pricing is of grave importance for organizations. At times, organizations become selective and offer low quality products since their sourcing is cheaper which improves their much needed margins in the face of an economic downturn or simply because the finance books of the organization show a rather gory picture and requires an instant boost of capital. Not all the companies opt for premium quality products. Their margins, too, are lower. But as long as there are customers who need their low cost low quality offerings, the company does not care much about good quality procuring. Competition becomes stiff when the market structure is that of a perfect competition with multiple players and easy entry to the market. In such market scenarios, there is tension in maintaining a balance between cost minimization and quality maximization. Minimizing cost can be achieved through alternate raw materials which cost lesser than regular good quality material. This helps in increasing margins or even in reducing cost prices for attracting the consumer at a lower cost option. However this may reduce the quality of the product.
The five performance objectives vis-à-vis, quality, speed, dependability, flexibility and cost, and how each of these objectives is closely associated with the operational aspects of each and every organization, must be seriously discussed. Quality can be clearly understood to be a mark of excellence in the product or services offered to the customer (Slack and Lewis, 2011). A quality product or service would exceed the expectations of the customer, and enhance the relation between the customer and the organization. The speed of execution; delivery of the goods or services so that the customer does not have to stand at the doorstep and wait for the product to be delivered is a key performance objective that determines how efficient the organization is turning out to be. Speed can be a function of efficiency within the organization.
Linear programming is a tool, the application of which, to a set of variables, is expected to optimize the resources under a define set of constraints. This essentially means that linear programming helps to ascertain the optimum resources that would be needed to produce a certain output when there are certain limitations to the transformation process (from input to output). In a production process, the inputs will be the human resources available, the quantity of raw materials available (Graves, 1999). The limitations will be on the number of hours the machine can be operational, the limit on the efficiency of the work force, the availability of the raw material (that can impact the ideal state of the machine and the workforce), the output received in an hour or a day from the machine.
Given a set of inputs, a set of constraints (as mentioned above), what would be the optimum value of the output that can be derived. A set of constraints in the transformation system become very complex to handle and analyse in order to determine the optimized value of output. Application of linear procedural programming helps in simplifying the process, identifying the optimized value of the output for the least value of the costs possible (through optimized use of resources, raw materials, equipment etc.).
Linear programming can be used by the managers to assess the prices and the volumes of the production, given the constraints that will help them in achieving the profit maximization objective of the company. Applying linear programming to business specific environment with given resource constraint, the expected output from the production process and the timeliness in achieving the output will help the project managers to assess in a practical manner what would be the true picture of target achievement. Thus, linear programming helps in giving an accurate analysis to achieve maximum profits, minimum costs under a set of given constraints of resources.
An organization has various complex projects that are being planned on an ongoing basis. These projects may not only be critical but may also be sensitive to time. For such complex projects it becomes vital to understand the activities that would have to be completed to accomplish the bigger picture that is the project itself (Critical Path Analysis, n.d.). After understanding the activities, it would help to understand how each of these activities is inter-dependent on the others. Once the dependency between the lists of activities is assessed, the critical activities are shortlisted and the longest and the shortest paths to reach the completion of the project are evaluated. Critical Path Analysis is a key project management tool that helps in tuning the systems to achieve efficiency and effectiveness by taking a diligent approach in execution by reaching the completion phase. This is achieved by processing through critical steps of the project. An analysis of the furniture supplier follows for a better understanding:
List of activities
B, D, E
Network Analysis helps to reduce the risk in complex projects. It provides the managers with an overview of the project and helps them make better decisions, plan in advance etc. Network analysis helps to uncover any dependencies within the project. It helps to organize the complex data and helps in making better decision. The critical path analysis helps in identifying the critical aspects of a project and how every aspect is linked to other aspects. Optimizing these critical paths by identification of the path which is accomplished in the minimum time possible is a key feature of a critical path analysis.
Operations planning and control is a necessity in the production process. Planning is required for taking an organized and visionary approach to production to meet the market demand. Based on the demand forecasted, a production plan with clearly defined timelines and resources will enable the production to be timely achieved, with least defects, and minimum costs involved. Without a planned and controlled approach the production costs may become difficult to estimate or control. This in effect will tremendously increase the expenses and further pressurize the margins (Rao, 2009). Planning is a pre-requisite for a production process. The clarity about the suppliers of the raw material, their strengths and their weakness, the costs involved, the logistics and the manpower required will all determine the robustness of the transformation of the raw material to finished goods.
However, there is no guarantee to the potential of the operational planning and control in ensuring smooth operations. This is due to the truly dynamic nature of the market structure. Changing consumer needs, competitor reactions, price hikes, sudden unavailability of raw material, natural calamities, government policies, regulatory and compliance untimely disorders, all add up to the uncertainties that impact the production process. Despite these challenges, planning and control must be incorporated with capable project managers to oversee the timely accuracy and to report possible delays and tactical steps to overcome losses due to the delays (Planning and Control, n.d.). A planned and controlled operational approach will enhance the productivity and result in a more focused production. Random operation without any contingencies or knowledge about the running of the process will only slacken the confidence of the resources that are part of the production process.
Taking a furniture supplying company as an example, a lucidly defined set of operational outcomes can be as follows:
Let us take an example of an advertising campaign for a furniture supplier. The key list of activities would be:
Estimated Time (hours)
To be completed first necessarily
To be started only upon completion of A
To be started only upon completion of A
To be started only upon completion of B
To be started only upon completion of C
To be started only upon completion of D and E
To be started only upon completion of D, E and F
Earliest Start Time
Assuming that the earliest time to start for activity A is 0, activities B and C can start only after 4 hours to completion of activity A. Task D can be completed only when Task A and B are completed. This means a total spending of 10 hours after completion of A and B. Task E, on the other hand can start only after 11 hours or once A and C have been completed. Task F will begin once D and E reach completion making a lead time of 21 hours. It must be ensured that the maximum of two times be taken when times are to be calculated. From the network diagram nodes A, B and D have a time of 18 hours which is the earliest start time.
Latest Finish Time
Next in calculation is the Latest Finish Time i.e. LFT. The start must occur at node 7 and there has to be a working backwards for the calculations. Task G must necessarily be completed by the 35th hour which is shown at node 7 of the diagram. For calculation purposes for task F, time taken to complete activity F has to be reduced from the previous task which is then placed at node 6 i.e. 30 hours). When the choice has to be made between two LFT’s, for example, for activity A, the route with the least value for LFT will be taken.
The Critical Path
Upon identification of all the LFT’s the critical path can be outlined. This is actioned by drawing all the nodes in places where the earliest start times and the latest finish times are same in value. The critical path is A, C, E, F, F, G and is indicated in the diagram below.
Quality management techniques like six sigma, JIT and the Pareto analysis are used in organizations to improve operations which lead to improvement in efficiency and productivity.
Six sigma which is a process improvement method focuses on statistical methods to identify error reductions in production process. Just in Time or JIT on the other hand is used to focus on reducing accumulation of inventory, raw materials and labour by bringing in resources right when they are to be used. Pareto analysis trims the number of operations in production and lets only the significant operation persist over time.
The robustness of the systems and control mechanisms in the production processes determine the output received. Various modelling tools can be used to identify critical processes which enable optimized use of resources to maximize profitability.
Critical Path Analysis (n.d.), Chapter 12, Viewed on June 2, 2015, <http://www.cimt.plymouth.ac.uk/projects/mepres/alevel/discrete_ch12.pdf>
Forza, C., 2002, ‘Survey research in operations management: a process-based perspective’, University of Padova, Italy, Viewed on June 2, 2015, <http://www.researchgate.net/profile/Cipriano_Forza/publication/235310738_Survey_research_in_operations_management_a_process-based_perspective/links/0c9605206095258d11000000.pdf>
Graves, S., 1999, ‘Manufacturing Planning and Control’, Massachusetts institute of Technology, Viewed on June 2, 2015, <http://web.mit.edu/sgraves/www/ProdPlanCh.PDF>
Horvathova, P., Davidova, M., 2011, ‘Operations Management as Practice of Organizations’ Strategic Management in Relation to the Environment’, International Conference on Financial Management and Economics, vol. 11, Viewed on June 2, 2015
Planning and Control, (n.d.), Chapter 10, Viewed on June 2, 2015,
Rao, S., 2009, ‘Operational Planning and Control Decisions’, Contribution to Cite Management Article Repository of Cite Co., Viewed on June 2, 2015,n<http://www.citeman.com/5031-operational-planning-and-control-decisions.html>
Schuler, A., Lawser, S., 2007, ‘Operating Strategies for U.S. Furniture Manufacturers’, Special Report, Part 2, Viewed On June 2, 2015, <http://www.nrs.fs.fed.us/pubs/jrnl/2007/nrs_2007_schuler-a_002.pdf>
Slack, N., Lewis, M., 2011, ‘Operations Strategy’, Financial Times, Prentice Hill, Third Edition, Viewed on June 2, 2015, <http://ir.nmu.org.ua/bitstream/handle/123456789/143250/9d60986d6bde8d2f02947fd3fb19ea5f.pdf?sequence=1>
Zaklouta, H., 2011, ‘Cost of quality trade-offs in manufacturing process and inspection strategy selection’, Massachusetts institute of Technology, Viewed on June 2, 2015, <http://msl.mit.edu/theses/Zaklouta_H-thesis.pdf>
Zott, C., Amit, R., Massa, L., 2010, ‘The Business Model: Theoretical Roots, Recent Developments and Future Research’, IESE Business School, University of Navarana, Viewed on June 2, 2015, <http://www.iese.edu/research/pdfs/DI-0862-E.pdf>
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