Operations Management - Coca-Cola Corporation - Case Study Example

BS20159- Business Operations Operations Management: Coca Cola Corporation Study Tutor: Greg Siggle University Centre Business School 28th April 2011 Operations Management: Coca Cola Corporation Study Introduction Galloway (1993) defines operations management as all activities that involve acquisition of raw materials, their conversion to finished products and finally their supply of the product to consumers. He further points out that the definition is a little bit restrictive as it seems to eliminate any activity that is not involved with the physical manufacture. However all useful activities concern the conversion of something. For instance in a manufacturing organization, it is not only the staff concerned with the actual manufacturing doing operations but also other staff working in the functional areas such as finance and personnel. MIT (2011) gives a more clear definition of OM as everything dealing with management of products, processes, services and supply chains. OM discipline involves simulating models in which human activity is planned, organized and controlled. The objectives of OM are customer satisfaction in the aspects of cost, specification and timing, and efficient use of resources on the organization’s part. These two objectives cannot be achieved at the same time, that is, an increase in one usually results to a decrease in the other. It is the duty of OM and operation managers to find this equilibrium or balancing point (Production and OM n.d p.9-12).This essay will look at the areas of OM including competitive factors and performance objectives, product and process design, supply network and planning and control as areas of operation management. Global company, Coca-Cola Corporation will be used as an example to further elaborate on product and process design before explaining on the other remaining three areas of OM discussed in the essay. The scope of OM is not limited to the four areas discussed in this essay but also includes aspects such as location, quality control, materials and maintenance management (Production and OM n.d. p.13). Customer Requirement and New Performance Objectives Customers are of immediate importance to organizations. Factors that determine customer requirements are called competitive factors. How well an organization satisfies its consumers is determined by how well its operations functions excel in performance objectives that determine competitive factors (Pycraft 2007, p. 77). For example if customer values (competitive factors) are low prices, high quality, fast delivery, reliable delivery and wide variety, then the organization will need to excel (performance objectives) in cost, quality, speed, dependability and flexibility respectively. For example Nokia Company has phones designed for not so well off regions like Africa where cost is a factor while it markets its high end brands in Europe. Organizations must determine how customers value the competitive factors, for instance, is quality preferred by more customers as compared to low prices? A practical way of determining between the relative importances of the competitive factors is to distinguish between what Professor Terry Hill of London Business School calls ‘order winning’ and ‘qualifying factors’ (Pycraft 2007, p. 78). Order winning factors are the things regarded by customers as the key reasons for spending money on products. They therefore directly contribute to winning a business. Qualifying factors on the other hand includes aspects of competitiveness where operations performance has to be above certain level to be considered by the consumer. For example consumers prefer the Coca-Cola coke drink because of its unrivalled refreshing feel (Order winning factor). Product and Process Design Products have unique characteristics and features that make consumers desire or buy them. Product design therefore is the process that involves an organization deciding on the specific attributes of their particular product. Various processes will be required to make this product; process selection refers to the formulation of the stages necessary to produce the product. For instance, there are a number of pizza outlets but different individuals will like pizza from different outlets because different outlets will produce unique pizzas; some have unique crispy taste, others are stuffed-crust and so on (different product design). The pizzas have many ingredients in common but are not prepared the same (process selection). Product design is very important as consumers respond to product appearance, color and texture. Product design applies to tangible products while service design establishes all the characteristics of a service including the physical, sensual and psychological (Product design and process selection, n.d., p. 52-55) The steps common in product design process usually originates from an idea then to product screening. After screening, a preliminary design is made before coming up with the final design. The steps are not linear but circular in that products design are never finished but always updated with new ideas (Product design and process selection, n.d., p.56). For instance Microsoft Cooperation always updates its Windows operating system as new ideas come up; Microsoft will never claim to have produced the ultimate operating system because they know new ideas will come up inevitably to improve the existing versions. Ideas can be generated by market research as researchers collect views from consumers. Competitors also bring new ideas to an organization. For example Safaricom, a leading telecommunication company in Kenya, Africa, came up with the idea of mobile money banking where customers can use their phones to deposit cash, pay for goods and withdraw cash from authorized agents. Today various mobile service providers in Africa have adapted the mobile money transfer service, with some even liaising with the existing commercial banks (Greenwood, 2009). A company learns by observing its competitors products and success rate. This is referred to as benchmarking. Benchmarking is the study of other top companies and comparing them to your organization. Process selection determines the product quality and costs. When we look at different companies ranging from a local Starbuck to Toyota Motor Company in Japan, there seems to be a large difference in the processing process. However, these processes types can be divided into two groups; intermittent and repetitive. Intermittent operations are labour intensive and produce variety of products with different processing requirement for instance hand made footwear. A repetitive operation produces one or few products in high volumes and it is usually a capital intensive affair (Product design and process selection, n.d., p.64-66). The process used in production will undoubtedly determine the end product characteristics and features therefore it should be understood that one should not try to separate process selection and product design, more so in the decision making process. Supply Network A good definition of supply network in operation management is found in the Aspen Institute website (2008) and is provided by Lee and Billington. They state that supply chain involves a network that obtain primary raw materials before transforming them to intermediate goods and then finally to finished products. The products are then delivered to the customers through a distribution system. Jones and Clarke (2002) point out traditional supply chains used to be centralized and distant. They further state that that is not the way many contemporary organizations think as trend today is towards a much simpler supply chain more close to the consumer. The gains obtained from centralization are offset by the costs elsewhere in the value stream hence there is no point for an organization to be centralized causing suppliers and consumers’ inefficiency. Tesco, a global grocery and general merchandise retailer, works closely with suppliers hence have a more effective supply chain. They are planning to open a number of new offices around Britain in the coming year strategically near their suppliers so as to enable small companies to be able to sell their produce through them with ease and convenience. It is this effective supply chain that made Tesco sells more homegrown apples and strawberries than any other store in Britain. Studies have shown that by Tesco sharing customer insight with their suppliers, the suppliers have become more efficient and consumers more satisfied (Tesco 2011). Tesco actually admits that the hugely successful supply network was inspired by the success of Toyota motors in developing its supply chain to be more efficient (Jones and Clarke 2002). Planning and Control This involves preparing the production process before hand. It includes setting the necessary pathways for each product or item, objectives start and completion dates. The major functions of planning and control includes preparation, routing (setting a pathway), scheduling (setting timelines), and dispatching (releasing orders) and finally follow ups that reports the progress (Production and OM n.d). Effective planning and control of manufacturing operations enable businesses to achieve maximum profitability by reducing uncertainty at all stages of the manufacturing process. The schematic diagram below shows the relationship between planning and control: Fig.1 Planning-control relationship, adapted from Accel website, 2010 The important thing to notice is that unlike what many managers believe, the control process does not begin after planning ends; it begins as soon as the objectives are set. It is also important to note that corrective measures are to be taken if the objectives are not fulfilled. The corrective action will normally involve either changing the objectives or altering the plan altogether. Managers do not like doing either, but corrective action is necessary if an organization is to move forward following a negative feedback (Accel 2010). Microsoft Corporation is planning to introduce a new operating system to the market, Windows 8 in 2012. The company has probably set objectives in the volumes it expects to sell in its first year in the market. The standards are already set in that it will be an upgrade of Windows 7 and will include including support for system on chip (SoC) and mobile arm processors. In case the product is not received well in the market, they will be forced to undertake some corrective action, as they did with Windows Vista in 2006. Coca Cola Company: Product and Process Design Coca cola company is a multinational in non alcoholic (soft drink) beverage industry. It is the biggest soft drink producer in the world (Cocacola, 2011). Product design and process selection affect product quality, cost and customer satisfaction. Furthermore, a product has to be manufactured by efficient and affordable inputs otherwise the product cost can be too high for the market. The ease to which a product is made is referred to as manufacturability (Product design and process selection, n.d., p.55). For any product to achieve customer satisfaction it must have the combined characteristic of good design, competitive price and meet the needs of the market. Coca-Cola does not sell some of its products like Coca Cola Zero in some Asia and Africa outlets since it costs considerably more than other brands like Coke, Sprite and Fanta and most of the populations in these areas are not willing to spend more money on such a product. Coca Cola Company knows that consumers respond to product appearance, color, and texture. That is the reason why the bottles are in different shapes and drinks different colors to appease different consumers in different regions. The steps in process design are repetitive and therefore automated and capital intensive. Coca cola has a unique technology. Technology in this case generally relates to the company products and processes for their production, the packages used for the products, the design and operation of various processes and certain quality assurance software. The beverage formula is among the best kept secrets of the company (Cocacola 2011).). Service design evokes sensual and psychological aspects; Coca Cola applies this through advertising. The advertisements of Coca Cola are renowned worldwide for their entertainment and originality. Coca Cola Company: Evaluation of Operations Management Customer requirements such as that of low prices and variety of products are ubiquitous to many products. Coca Cola tackle these competitive factors by packing their drinks in different bottle sizes ranging from 200ml to 2 liters in some regions. If all Coca Cola drinks were packed in 1 liter bottles, the people drinking their products daily would have definitely been lesser than the current number. This is because not everybody could be affording to buy the 1 liter bottle even if they wanted to drink Coca Cola products and even for individuals with cash, drinking 1 liter Coke alone could prove uneconomical as one will be satisfied before finishing the drink. The company also tackles the issue of cost by having a variety of products that are not of the same cost. By having a variety of products, the customers will chose what they need and want. Coca Cola boasts of a high level customer acceptance because of its excellent brands, a highly qualified team of dedicated employees, worldwide network of distribution and complex marketing techniques. These are among the performance objectives that make it keep up with the competitive factors. Despite all that, the company faces challenges of competition in almost the entire geographical region it is present from other brands both local and international. Supply network of Coca Cola Corporation is elaborate. Rick Frazier, vice president of the Coca-Cola supply chain admitted in 2010 EcoForum that the company supply network is neither perfect nor environment friendly. He noted that the Coca-Cola supply network is a $64 billion operation, one of the largest in the world. He further outlined that Coca-Cola does business in 200 countries and has 3000 suppliers with over 200,000 vehicles on the road. The focus of Coca-Cola in improving its supply network is in three areas including water, packaging and energy. These are the major aspects in their production and the company is investing a lot to efficiently use water and energy. An innovation that Coca-Cola is championing is the manufacture of plantbottle which are bottles made of 30% plant material (sugarcane) and is planned to be used in the future for packaging the drinks. Planning enables an organization to set and accomplish targets and control checks the organization not to deviate from the target. Tactical planning is a process by which organizations determine and prioritize strategic planning. Coca-Cola tactical planners are always trying to determine what new markets they should enter. Tactical planning will involve market sizing which determines the size of the market, for instance if Coca-Cola wants to venture in Argentina, they will carry out consumer survey to determine market size which simply means potential soft drink consumers. After choosing the market, the organization decides on appropriate strategy of achieving this goal. If most people in Argentina prefer drinking Pepsi, Coca-Cola must attempt to steal market share from Pepsi by highlighting the product features that make Coca-Cola superior (Ehow, 2011). Other tactics include increasing the volume of products Coca-Cola customers purchase like salty snacks that go well with soda. Conclusion In conclusion we have seen that operation management is concerned with effective and efficient management of any operation. It is vital for success of any organization because of its profit making two fold effects; increase in effectiveness will increase revenue while increase in efficiency reduces costs. The end result will be more profit for the organization, since profit is the difference of revenue and cost. Without proper application of operation management principles, an organization can only make profit by accident; either they got it right by chance or the available competition is not good either, in any case the situation is unlikely to be the same forever (Galloway 1993). Costumer requirement and new performance objectives challenges an organization to produce products that can satisfy the customer and those that are relevant. Product process and design in OM assists the organization to come up with the most productive while least expensive processes in producing goods and services to the existing market. A good supply network is the one that has minimal wastage to the supplier while most convenient to the consumer while planning and control keep an organization on its toes so as not to veer from its values and ethos. While looking at its OM, Coca Cola keeps on trying to do better in all its departments so that the products remain relevant and competitive in the market. In my opinion, the success of Coca Cola Corporation over its 125 year history is not by luck but largely due to the organizations adherence to the OM theories and concepts. References Accel (2010). Management planning and control system. Accel, Retrieved 2 May 2011 from http://www.accel-team.com/control_systems/h_control_01.html Aspen institute, 2008, Supply chain management, aspen, Retrieved 2 May 2011 from http://www.aspencbe.org/documents/SCMmass.pdf Cocacola (2011), Index, Coca Cola Company, Retrieved 2 May 2011 from http://www.coca-cola.com/en/index.html. Ehow (2011). How Coca Cola Uses Tactical Planning, Demand media, Retrieved 2 May 2011 from http://www.ehow.com/how-does_4923492_coca-cola-uses-tactical-planning.html Frazier R, June 7 (2010). Supply Chain and Environment, The Coca-Cola Company Corporate EcoForum, San Francisco, California, Galloway, L (1993). Principles of operations management, Rutledge publisher, London, Great Britain, Retrieved 2 May 2011 from http://books.google.co.ke/books?id=Y6QOAAAAQAAJ&pg=PA1&lpg=PA1&dq=principles+of++operation+management&source=bl&ots=GBJ6jRGRZC&sig=iIzvO_GKrbhTv9ZpeV0aREHbfA8&hl=en&ei=WlG-TYePKOaP0QGY75DSBQ&sa=X&oi=book_result&ct=result&resnum=9&ved=0CFsQ6AEwCA#v=onepage&q=principles%20of%20%20operation%20management&f=false >. Greenwood, L (2009), Africa's mobile banking revolution, BBC, Retrieved 3 May 2011 from, http://news.bbc.co.uk/2/hi/8194241.stm Jones, T and Clarke, P (2002) ‘Creating Customer Driven Supply Chain’, ESR journal vol.2, no.2, MIT (2011) What is operations management, MIT institute, Retrieved 2 May 2011 from, http://mitsloan.mit.edu/omg/om-definition.php>. ‘Production and Operations management’ (n.d.) chapter 1, viewed May 4 2011 ‘Product design and process selection’, (n.d) Chapter 3, Wiley media, viewed 2 May 2011, . Pycraft, M (2007) Operations management, Pearson publisher, South Africa, Retrieved 2 May 2011 from Read More