Operations and Business Systems Management - Research Paper Example

Operations and Business Systems Management Part -A Slack et al - The Four V's applied in an Organization : Most operations are a complex set of interrelated smaller operations each with a specific function. These sub- operations interact together to provide the main goods and services to customers, each having its own transformation process. There are basically four important dimensions which can be used to distinguish between different operations: the volume of their output, the variety of their output, the variation in the . demand for their output and the visibility. In this case, we would be concentrating on the well known firm Cadbury Ltd. Cadbury's have been a renowned English manufacturer of chocolate products for more than 100 years. Today, as Cadbury - Schweppes, the firm is a major food products conglomerate, but one with very deep roots. Indeed, the current mission statement of the company echoes the philosophy of John Cadbury, the committed Quaker who founded the company in 1794. Cadbury's mission stresses on many objectives. It also explicitly sets out a commitment to encourage the personal fulfillment of employees and a major thrust is given to customer satisfaction. How the company manages its different processes as such - manufacturing, distribution, etc and its various operations and sub-operations would be detailed here. There have been a large number of strategic decisions and a operational research and development involved in making the products a huge success throughout the world. The emphasis was laid not only on the major operations of manufacturing, marketing and distributing but also on a large number of sub-operations which are essential in very process. Cadbury is now market leader in UK chocolate confectionery, with worldwide exports and volume is continuing to increase by about ten percent per year. Volume in general refers to the number of times an operation has to deliver a service or product. The usual descriptors for the volume dimension are high volume, medium volume and low volume. The distinction between these three categories is usually drawn on a subjective basis. The firm deals with high volume operations supplying repetitive or standardized products and services. This allows for repeatability, specialization and systemization usually resulting in relatively low unit costs. Higher volume operations can gain efficiency by breaking down the tasks into small units so staff specializes in only a small part of the total work. It is a known fact that volume is the inverse of variety. A low variety market is by definition high volume. Operations can be set up to produce a single product or service, or a range of very similar products, very efficiently. There is no need to allow for variation in material, specification or process. Indeed Cadbury's deal with similar products mostly chocolate based - cocoa, drinking chocolate, chocolate bars and so on, thus the operations could be set up to produce them more effectively and efficiently. The major challenge here would be global deployment of a set of volume products. This could also be overcome if correct measures are taken and right strategies are being followed. Similarly, the greater the variety of product or services produced, the more flexible the operation has to be. Flexibility can be seen as a response to two types of stimuli - variety and uncertainty. Variety indicates the necessity of the processes to adopt a range of operating conditions. For example, to cope with the existing range of service parts, components or products, to adapt products or services to varying customer requirements, to be able to adjust output levels to cope with seasonality, or to be able to expedite orders to different levels of priority. Initially, Cadbury Ltd sold only tea, coffee, cocoa and drinking chocolate. Later John's sons started producing chocolate bars, which proved very successful, so much that the business started expanding overseas as well. Presently Cadbury's Ltd deals with a very large number of beverages almost fifty different types and chocolates almost hundred different types. Few of these names includes Boost, Bourneville, Crunchie, Mini Eggs, Mini rolls etc. The firm later introduced Dairy Milk products such as Dairy Milk Wafer, Dairy Milk with Biscuit, Dairy Milk with Crme Egg, Dairy Milk Peppermint and so on. These products turned out to be a major hit both in the country as well as overseas. These not only boosted the sales and profit margins of the firm but also created havoc to the competitors by attracting a large number of new consumers and retaining the old consumers. It must be well understood that the low variety markets may be a result of lack of need, or lack of choice. Whatever the cause, the organization must beware of complacency. All processes that provide a good or a service exhibit a certain amount of 'natural' variation in their output. Generally, variation describes the pattern of the volume demands. The variations are created by the combined influences of countless minor factors, each one so unimportant that even if it could be identified and eliminated, the decrease in process variability would be eligible. Similarly if there are many peaks and troughs in demand the situation is said to be one of high variation. In effect, this variability is inherent in the process. Variation is thus concerned with the change in patterns of demand for products or services. Little variation in demand allows some organizations easily to plan and control their activities, resulting in high utilization of resources. A critical aspect of quality is variation in product dimensions and features and its impact on the performance, cost, and safety of a product. Variation in production impacts many aspects of operational efficiency including inventory, waste, touch time, warranty/product returns, and capacity utilization. Ultimately, variation reduces profit. In order to compete in today's marketplace, organizations must proactively manage the impact of variation on their product and operations. This has been followed by Cadbury's Ltd and so it is one of the leading confectioners in most parts of the world. One design criterion of Cadbury's Ltd was that its schedules and resulting material requirements could be visible to both a company's suppliers and customers. The increased visibility throughout the supply chain allows all companies in the chain to synchronize their material requirements. Any changes in material requirements or supply by choice or otherwise, of any company in the chain are transmitted quickly to other companies in the chain. Therefore, suppliers are kept up to date with any changes in materials requirements from anywhere within the chain and customers are kept up to date with any changes in forthcoming deliveries. This is the very essence of success of Cadbury's Ltd. A Typology of Operations V The above diagram depicting the four V's and their importance is self - explanatory. We can view the different implications involved at the different activities. The variation referred here implies to the variation in demand. Part B : 1) Four Stage Purchasing Model of Reck and Long : There are a large number of tools and frameworks which measure how strategic a purchasing department is. One is Reck and Long's (1988) four - phase purchasing tool, depicted in figure below. This positions purchasing capability from 'passive' through to 'integrative' within the overall business. This tool can be used as detailed benchmarking mechanism for firms to position themselves in order to make changes. Strategic positioning tool ( adapted from Reck and Long, 1998) At the very early stages in Cadbury's Ltd, it was being recognized that purchasing is contributing more to corporate strategy and planning. Purchasing strategies were designed to be more functional and supportive. At the time there was little evidence of opportunity in theory to turn the hierarchy of business strategy upside down to drive the business through supply market advantage, for example. Also, purchasing strategies were constrained by the functional boundary; integration across functional boundary was not encouraged by hierarchical, classical planning. The different stages in Reck and Long model states the following things : 1. Passive is where the function is reactive and in crisis, applying quick fixed and focused on day - to - day routine operations. In this stage purchasing normally begins as a reactor to requests from other departments. Many of purchasing legitimate activities are handled by other functions outside of purchasing. 2. Independent is where the function is adopting latest techniques and 'best practice', but its strategic direction is not in harmony with the corporate strategy. In this stage purchasing departments spend considerable time attempting to professionalize the purchasing function by introducing such things as computerized information systems, formalized supplier programmes and communications links with the technical function. 3. Supportive is the stage where purchasing strengthens the corporate competitive position. Top management views purchasing departments as essential business functions. Purchasing is expected to support and strengthen the firms competitive advantage by providing timely information to all departments in the firm about the potential changes in the price and availability of materials, which may impact the firm's strategic goals. 4. Integrative is where purchasing strategy is fully integrated with other functions and with corporate strategy in a much more cross-functional way. The firm's competitive success rests significantly on the capabilities of the purchasing departments personnel. Purchasing role within the firm changes from facilitator to functional peer. This development process must be implemented and guided by management over a period of time. Recognition of stages of purchasing strategy was an important step as it raised awareness that purchasing functions had to progress and develop; if an organization's purchasing function was in stage1, then aspiring to reach stage 4 during the next year would seem highly ambitious. Certain fundamentals had to be in place first to move the function out of crisis. A key development in purchasing strategy is the appreciation that one size didn't fit all and that a 'horses for courses' approach is more appropriate. This involved firm viewing the total spends as portfolio, different parts of which would be treated differently. Earlier in the firm Portfolio approach was adopted using ABC analysis. Here, the smaller number of higher value (A) items was managed differently to B and C items in terms of their procurement, inventory management and stores management. However, lower value items had been critical, so variations of ABC analysis were used to create multi-criteria groupings. For example, a CA item could be C by volume criterion but A by critically. Later the finance heads in the firm, decided to divide the portfolio into product families, each with a team to purchase those items and who were ale to form their own strategies relevant to their particular supply markets. However, both ABC analysis and product family driven strategies did not address or highlighted critical supply issues such as 'risk' and 'trust'. The issue is about strategic alignment. It is essential for functions within the firm to have a clear understanding of the value process within the organization, how this is being communicated and utilized. The concept of strategic alignment makes common sense to most people. The problem comes when trying to apply it in practice. As the level of information that the purchasing function receives will depend on the level of strategic maturity that it is viewed as having within the organization ii) What would you recommend the organization do in order to improve their purchasing further At the supply end of the business, the purchasing function forms contract with suppliers to buy in materials and services. Some of these materials and services are used in the production of the goods and services sold on to customers. Other materials and services are used to run the business: for example, staff catering services or oil for machinery. These do not make a part of the finished goods or service but are still essential purchases for operations. There are four key objectives for the purchasing function and these are discussed below : -> Purchasing at the right price: This is an important way of providing the organization with a cost - advantage as the cost of materials may have a significant effect on an organization's overall cost. This is a transitional activity of purchasing - to secure the best possible deal. -> Purchasing for delivery at the right time and in right quantity : Purchasing at right time and the right quantity can also have an important impact on the operation's overall performance. Success in this area requires the purchasing function to understand the operations, processes and forecast activity, and the intricacies of being lead time, volumes and seasonality's, for example. Successful management of timing and quantities has a big influence on inventory levels.( working capital) -> Purchasing at the right quality : The quality of the incoming goods and services will have an important impact on the quality of the processed goods and services, and also on the reliability and dependability. While in the past a careful inspection was done on incoming items, purchasing functions are now working closely with suppliers to ensure that incoming goods and services confirms to the agreed quality specifications. -> Purchasing from the right source : One key function of the purchasing department is to make choices between various suppliers. Decisions may not only rest on price and quality but also on future potential, and willingness to develop what they do, and to work with the downstream organizations. A second issue here is the decision of whether to have just one organization to provide the raw materials or to reduce the risk in problems of supply through multi-sourcing. The management of the purchasing function is similar to the management of any other function. That is, it is involved in the seven functions of management : decision making, organizing, staffing, planning, controlling, communicating and directing. These functions differ for purchasing only in as much as they deal with the particular purchasing specialty :As such in decision making the purchasing management decisions would involve establishing policies on the number of sources to use, how often a product will be reshopped, how often to visit suppliers and so on. Similarly in the organizing function in purchasing may run counter to what general management feels is the best policy. From a purchasing point of view a centralized organization is clearly superior to a decentralized organization. Same proceeds with the remaining stages. As any other good firm, Cadbury's Ltd as well uses the concept of Supply chain management. This approach signifies the management of the whole supply chain, from raw material supply right through to distribution to the end customer. Purchasing functional professionalism : By purchasing functional professionalism is meant that process by which corporate decision - makers recognize the need to improve their existing structures and processes, as well as practitioner skills and capabilities within the purchasing function in the company. This recognition normally involves, first, a focus on immediate cost reduction, through a reduction in headcount internally, or through the immediate aggressive renegotiation of external supply contracts. In the second stage, a reappraisal of the purchasing function in relation to existing in-house functions ( in particular the existing manufacturing and production function) may occur. This may involve a reappraisal and a repositioning of the purchasing function within the corporate hierarchy, with an increasing focus on ways to improve the internal and external cost structure behind the delivery of the function. Relatedly, this appraisal can lead to a new commercial role and responsibility for purchasing management. Instead of its historic role as a reactive administrative function, purchasing can become actively involved in internal and external supply chain management. This process normally involves the function developing a more active approach to supplier appraisal, development and performance. This may also involve an emphasis on the total integration and management of the existing logistics and supply chain , as the basis for waste reduction and operational efficiency throughout the corporate supply chain for current products and services. It may also involve a significant reappraisal of the insourcing and outsourcing of historic support service to the firm. This focus on new processes and ways of doing things can be considered as the search for dynamic efficiency. (2665 Words). REFERENCES : Day, Mark, 2002 : Gower Handbook of Purchasing Management, Gower Publishing Company, 119 -225 Ellram, L.M & Carr, A., 1994: Strategic Purchasing: A History and Review of the Literature. International Journal of Purchasing and Materials Management, 30 (2), 10-18. Quayle, Michael, 2005 : Purchasing and Supply Chain Management: Strategies and Realities. Reck, R.F. & Long, B.G., 1988. Purchasing a Competitive Weapon. Journal of Purchasing and Materials Management. 24(3), 2-8 Slack, N., & Johnston, R., 1998. Cases in Operations Management, Pitman Publishing. Slack, N., Chambers, S. & Johnston, R., 2004. Operations Management. 4th Ed. Harlow, Prentice Hall www.cadbury's.co.uk Read More