Operations Management Analysis - Essay Example

Operations management Name Class Unit Table of Contents Table of Contents 2 Introduction 3 1.1 The importance of Operations Management to the success of a business, using a McDonald’s restaurant as an example. 3 1.2 Explain the need for a McDonalds restaurant to produce goods / services to time, cost and quality / specification, and with reference to legal requirements. 6 Traditional European style 7 Modern Japanese style 7 1.3 Produce a systems diagram, accompanied by a brief explanation, to illustrate how a McDonalds restaurant operates. 9 2.1 With reference to and relevance to McDonalds, explain the "Three E's": Economy, Efficiency and Effectiveness. 10 2.2 Explain the trade-off (or tension) between time, cost and quality, using McDonalds as the example. 12 2.3 Evaluate the significance of the 5 Criteria: Cost / Quality / Speed / Dependability / Flexibility to a McDonald’s restaurant 14 3.1 Explain what Linear Programming is used for. How might it be used in principle by McDonalds? 16 3.2 Explain how Network Analysis and Critical Path Analysis could be used when McDonalds sets up a new franchise outlet in Oxford. 18 4.2 Produce a suitable Network Diagram and Critical Path for setting up a new McDonalds franchise in Oxford. 18 3.3 Explain why a large McDonald’s restaurant needs Operational Planning and Control. 20 4.1 Produce a set of clearly defined operational outcomes for a typical McDonalds, and explain why those you have chosen are important 21 4.3 Explain how Quality could be best defined, used and maintained by McDonalds UK to control their many franchised restaurants throughout the country 23 How can McDonalds make each restaurant to be so similar even if they are all franchise? 23 Conclusion 24 Introduction This paper is aimed at giving the students and in-depth understanding of the role and importance of operations management. This is in relations to the efficient and effective production of goods and services in an industry (Krajewski, Ritzman and Malhotra, 2001). The paper shows means in which a business can enhance their productivity while at the same time retaining their customers and enhancing loyalty. The paper is organised into four main sections; the nature and importance of operations management, the link between operations management and strategic planning, organisation of typical production process, applying relevant techniques to the production of an operations plan for a typical business. This paper will utilise McDonalds as an example. 1.1 The importance of Operations Management to the success of a business, using a McDonald’s restaurant as an example. Operations management is a very vital aspect in the business operations. This is due to fact that it forms the heart of the organisation through control of operation system. The field of operations management deals with; design, operating, planning, and controlling (Krajewski, Ritzman and Malhotra, 2001). The field of operations management is seen as a functional field of business with clear set management responsibilities. McDonalds Ltd is considered as a pioneer is the fast food industry. From the humble beginnings in the 1940s, McDonalds has expanded to become one of the leadings restaurants. McDonalds traditional philosophy of “Quality, Service, Cleanliness and Value” has acted as its leading intensity behind its operations make up (McDonalds official website, 2016). Fig.1 operations management at McDonalds Design-this includes detailed checking of plans, information quality control, case studies, tools for all business aspects such as the company structure, the design process, close out, construction and data collection. Planning- McDonalds product planning involves coming up with a menu which is capable of keeping both quality and economic aspects in considerations. McDonalds is expected to keep adding new items on their menu with an aim of accommodating changing customer tastes and preferences. The planners utilise this data in forecasting for the stores which has taken part in a given promotion. Product design is also used in analysing how weather affects demand for particular products which includes McFlurrys and salads. Through the design, the forecasts become very accurate which helps in reducing costs as well as improving customer satisfaction. Operating- this aspect looks at the operating environment. At the moment, there are challenges which are beyond the same store sales. This includes issues such as slow down of economies, recession such as in the European market and new and unexpected changes in the menu. Controlling-McDonalds control is hierarchical. This is a top to bottom management system where managers give directions to the subordinates. The management, influence the workers behaviours through punishments such as reducing bonus and carrying out working performance. The restaurant has their own chain of command where workers are controlled. The management ensures that through controlling their workers, they can deliver high quality food. McDonalds have their operations in their restaurants which are worldwide. All restaurants are linked to the overall strategy of the hotel. Therefore, the operations management has been a very important part of McDonalds since it is linked to the overall strategy. Operations management helps in promoting McDonalds strategy hence helps the organisation to gain competitive advantage in the industry. For example, through use of process planning, McDonalds is able to reduce costs and gain a cost advantage and a competitive advantage. This makes it vitaL for McDonalds to manage business operations effectively since they have a great impact on the overall strategy. 1.2 Explain the need for a McDonalds restaurant to produce goods / services to time, cost and quality / specification, and with reference to legal requirements. At McDonalds quality plays a major role. This makes quality management to a critical aspect of operational management at McDonalds. Quality at McDonalds is not only based on the products being offered but also on the services being provided to the customers. This includes provision of faster and friendly services, gaining understanding on customer needs and enhancing production. This is supposed to allow the restaurant to live by its goals while maintaining value. McDonalds is not expected to sacrifice quality for value. McDonalds is expected to have high quality for their products (McDonalds official website, 2016). There are two types of quality; traditional European style and the modern Japanese style. Traditional European style Using the traditional European style, goods are produced using rare materials. The method usually uses handmade production. Goods made through this style are expensive (Shibagaki, Trevor and Abo, 1989). Modern Japanese style This style involves conformance to standards. There are identical and repeated products leading to mass production. Goods produced in this style have low price (Shibagaki, Trevor and Abo, 1989). McDonald production is based on the modern Japanese style. In this case, people come to McDonalds when they have already made a decision on what to order. For example, a customer going to order for burgers in McDonalds know that they are of high quality at all times. He expects them to be tasty and fresh. The customer can also made customisation to their order based on a request since McDonald’s values and respects their customers. McDonalds do not charge extra for putting anything special on a burger (McDonalds official website, 2016). Customers come to McDonalds due to fact that they produce the best and high quality hamburgers. Governments set the legal requirements for business operations. There has been inclusion by the government on the legislation for the food suppliers. According to the rules set by the government, business cutting down the costs is not expected to harm the quality. This implies that costs cutting measures should not affect the customers’ health or harm them in any way. McDonalds has been on the front line in food hygiene based on legal requirements. There are laws on minimum requirements on food storage, cooking and preparations. The rule specifies on the employees’ requirements and the required kitchen equipments. McDonalds’ are expected to comply with this rules which also includes wearing special hats, maintaining cleanliness in the kitchen and keeping their food at the right temperature. McDonalds should always make the right order for their supplies. They must be able to keep adequate stock that will last for adequate time without wastage. McDonalds are also expected to procure from the competitors who are registered by the government and those that comply with the government requirements. This will reduce the risk of being taken to the court due to non-compliance. Legal processes cost the business a lot of cash and affect the business revenues. It also affects the business reputation. The business has to make sure that they prepare their products in a given limit. The production process should not take a lot of time and should not cost much. The more the restaurant is able to serve the customer fast, the higher the profits they get. As McDonalds is able to serve the customers in time, they are able to get more loyal customers. It is important to note that some of the customers come to McDonalds for a short time due to time constraints. If McDonalds increases the time to prepare their products, they will lose some of their customers who are constrained with time. McDonalds are expected to keep their prices down for them to make profits. This is due to fact that the restaurant spends a lot of cash in advertisement, ordering and delivering the food. McDonalds is also expected to train more customers on the right way to prepare burgers using the right ingredients. This will ensure that they reduce the costs of the products used through efficiency. The main source of costs for McDonalds is rent, training, rent and advertising. Customers paying for McDonalds products such as burgers are expected to pay for all the costs incurred. At the moment, the cost is high and if the costs increases further, the restaurant may fail to receive adequate profit to pay for their rent since the number of customers will reduce. This makes it prudent to keep the costs of production as low as possible. 1.3 Produce a systems diagram, accompanied by a brief explanation, to illustrate how a McDonalds restaurant operates. The above systems diagram shows how McDonalds restaurant operates. This starts when the customers enters in the restaurant. If the customer realises that the restaurant is okay and a good place to it, he continues with the process. To decide if it’s a good place to eat, there are various criteria which a customer can use; The cleanliness The restaurant environment The food smell The quality of the service and arrangements inside Fig. 2 systems diagram If the customer becomes satisfied that it is a good place, they stay inside. If they find that the queuing is too long and the service is slow, they may change their mind and go to a different restaurant. The fast food restaurant is expected to have adequate employees to serve the customers. The food should not take long time and must be fresh and hot. At the serving and packaging, the customer is asked whether he wants to eat inside the restaurant or take away. A satisfied customer is able to come back another time. 2.1 With reference to and relevance to McDonalds, explain the "Three E's": Economy, Efficiency and Effectiveness. Through use of the three E’s, it is possible for McDonalds to determine the profits they will make. The three E’s makes McDonalds more flexible in their operations. McDonalds is supposed to strike and find a balance instead of making a standardised goal. Economy- providing products and services at the lowest price To survive the current market competition, McDonalds are expected to allocate their resources in a responsible manner. When purchasing a new product, McDonalds is expected to train their staff and ensure they are able to use it. McDonalds are expected to carry out a cost benefit analysis before investing in any equipment. McDonalds are expected to look for ways to lower their prices and gain a competitive advantage (Krajewski, Ritzman and Malhotra, 2001). Efficiency- doing their job in the best way possible. Efficiency is about the resources and firm performance. McDonalds have been working hard to keep their costs down. This implies consuming less to deliver similar products as other firms (Krajewski, Ritzman and Malhotra, 2001). McDonalds has been able to attain high level of efficiency through adopting modern technology and training staff. McDonalds have already started their own university Hamburger University. The restaurant has their special rules on how to make hamburgers, what to put in and staff and time needs. Through this principle, McDonalds has been able to save a lot of money. This principle allows the restaurant to determine the amount of ingredients, equipments required and the number of staff. Effectiveness-doing the right things It involves being able to deliver the goods and services at the right time (Krajewski, Ritzman and Malhotra, 2001). For example, it involves McDonalds being able to offer their customers what they want and in the right time. If McDonalds is unable to serve their customers on time, they become ineffective. McDonalds can be able to serve their customers fast while at the same time maintaining quality. McDonalds can set their objectives at the beginning of their performance to analyse their performance and see areas that they have to improve. 2.2 Explain the trade-off (or tension) between time, cost and quality, using McDonalds as the example. Quality Cost Time Fig 3. Trade off McDonalds has their goals which ash to be met within a certain budget, available resources and given time. The management is expected to decide on a trade-off between the time, costs and quality. Trade off occurs due to fact that one cannot have everything and McDonalds is not an exception in this. For example, if McDonalds opens a new restaurant, they are expected to cut costs through looking for cheap labour and equipments. In some cases, the company is faced with limitations in money and time. Reducing the costs may lead to more time and higher costs. To have delivery in time, McDonalds is expected to put more money. If the suppliers are the main source of problem for the delay, McDonalds may be forced to look for other suppliers since they do not want to lose their customers. This may even lead to paying more since the quality should never be compromised. The quality of the restaurants products brings customers to McDonalds. If McDonalds lose their customers due to low quality, their reputation can be damaged and it will be difficult to gain competitive advantage from the competitors. McDonalds operates on a daily basis. If the restaurant wants to increase the number of customers coming in every day, they are supposed to increase the number of employees working on the kitchen. This leads to a need for extra money. If the restaurant fails to increase the number of employees working in the kitchen to reduce the costs, the quality may drop significantly. If the restaurant wants to attain higher targets with less staff, their products and services loses the quality. This is because the products will not be cooked properly and the staff may mess with food hygiene. McDonalds cannot use this approach since they may face lawsuits from the customers. MacDonalds employees will take time to control the process of cooking and carrying out every task properly if the restaurant wants to enhance quality without spending extra money. The restaurant can reduce their prices through reducing the number of employees. This will leads to low quality since the time taken to produce the products is high. To sum up, it is hard to reduce the cost, increase the quality and reduce the time of cooking all together. There is no good way for McDonalds to concentrate on what to cut down and what they need to concentrate on. Time, quality and cost should be managed together to enable the firm to make profit at the same time. 2.3 Evaluate the significance of the 5 Criteria: Cost / Quality / Speed / Dependability / Flexibility to a McDonald’s restaurant To determine the competitive advantage of McDonalds, they can be provided through looking at their five competitive functions. Fig.4, competitive functions Quality- McDonalds is well known for their quality. The restaurant uses fresh ingredients in their burgers which make them fresh and tasty. The restaurant delivers foods and services in the right condition to the customers and ensures that their staffs are cheerful. McDonalds always conforms to quality on the products and services provide. The conformance to quality is always high. Speed- McDonalds serves their fast food at a very high speed. They have quick response to the customers who orders their meal. For example, services at McDonalds usually take three minutes. Dependability- McDonalds has very high dependability. They are able to serve their meals in time. They are highly dependable and avoid any problem which may be a bottleneck for them. This may lead to them losing their customers and reduce the level of production. Cost-McDonalds products are of low costs. The low costs are made possible through use of repeatability process which also involves hiring people in the production on low costs. The meal is specific and produced through mass customisation. Flexibility-The ability for McDonalds to change meal is weak. This is due to fact that the meal is always the same which includes hamburger, chips and soft drinks. The products are produced in high volumes but the amount sold varies based on the time of the day. The menu is made flexible based on the customer preference. There is high staff flexibility since they are employed on rotational basis. For example, the restaurant has high number of employees during the lunch time but they are reduced at the evening or mornings when the number of customers is low. Fig.5 3.1 Explain what Linear Programming is used for. How might it be used in principle by McDonalds? Linear programming is a mathematical method that is used in computer simulation to look for the best solution when allocating limited resources. The main aim is to attain the highest level of profit at lowest cost (Najdawi, Chung & Salaheldin, 2008). For McDonalds, the main goal is to attain maximum profit at the lowest costs. It is vital for McDonalds to maximise their profit through selling a lot of products. But this requires investing in additional purchases. After setting their goal, the firm McDonalds have to come up with a method of action which is the most conducive in attaining their goal. The procedure of choosing depends on the available knowledge on existing alternatives.to make a managerial decision, it is important to identify all the uncontrolled variables which are the management subject. To come up with a mathematical model, McDonalds is required to have an in-depth understanding of the role and functioning of the system, have all information about system limitations and come up with the scope of all allowable values as well as the controlled variables. Fig. 6, Linear programming model Linear programming can be used by McDonalds as above. The method is not very useful when looking for the best ratio of production in fries and hamburgers. It is important to note that customers cannot eat what McDonalds suggests or wants them to. This makes it hard for the restaurant to make the exact number of product expecting the customers to buy them all. McDonalds bases their production on experience and business environment. For example, they can predict the amount needed for a particular day based on past sales. If a product proves to be selling fast, McDonalds increases their focus on it based on linear programming model. This is due to fact that it is better to invest on fast selling products than those that have low sales (Najdawi, Chung & Salaheldin, 2008). 3.2 Explain how Network Analysis and Critical Path Analysis could be used when McDonalds sets up a new franchise outlet in Oxford. 4.2 Produce a suitable Network Diagram and Critical Path for setting up a new McDonalds franchise in Oxford. Activity Activity name time Precedes Design the project A 8 days - Identify a location in Oxford B 6 days A Drawing a contract with McDonalds C 10 days - Draw a financial plan D 7 days - Respond to McDonalds requirements (meeting the set standards) E 3 days C Recruiting the right labour force (Adequate qualified employees) F 10 days C,D Painting G 4 days B,E,F Buying and installing the equipments H 8 days F Look for other staff such as cleaning staff I 5 days G,H Commence on marketing the outlet J 5 days A Network analysis-network analysis involves breaking an entire project into components. These are events and activities and plotting them to show how they are related (Lockyer and Gordon, 1991). Critical path analysis-this is a process which outlines the sequence of events which has the most favourable outcome (Lockyer and Gordon, 1991). CPA involves taking a close and careful consideration on the events sequence and having an estimated time for each event. CPA is very relevant for McDonalds. According to this table, all events have sequence. The events must start with a given activity. This is especially due to fact that the events are interrelated. It is also impossible to implement all activities at the same time (Lockyer and Gordon, 1991). For example, McDonalds cannot set their equipment for a new franchise without having a premise. Also, setting equipment for McDonalds cannot be done in parallel with looking for the cleaning staff. This is due to fact that the actions are not related in any way and do not depend on each other. Through following a set sequence, it becomes possible for McDonalds to save time and money. According to the critical path for McDonalds, the managers ought to spend more time on the items in the critical path. This will make it possible for the plan to be carried out using the shortest time possible and avoid delays. The others activities not in the critical path cannot harm the process. It will also allow the plan to be carried in such a way that none of the activity is left behind or done at the wrong time (Lockyer and Gordon, 1991). Fig.7, CPA 3.3 Explain why a large McDonald’s restaurant needs Operational Planning and Control. Operational planning- this is about the future and involve implementing the business tactical plans. Every business irrespective of size requires operational planning. Operational planning involves the regular and daily activities which help in tactical planning (Krajewski, Ritzman and Malhotra, 2001). It involves the strategic objectives of a large firm such as McDonalds. Through operational planning, it is possible to predict rush hours, required stock and the popular meals on the menu. It also becomes possible to predict the required staff in every time of the day (Love and Hoey, 1990). Since McDonalds is supposed to keep high quality at low costs, understanding operational planning can help in lowering costs. Through operational planning, it becomes possible to keep the costs low while at the same time maintaining quality. This is through planning for the required amount of staff, required stock facilities and the time of delivery. Controlling-McDonalds are expected to maintain the standards attained in their operations. Control is used in tracking the results attained by McDonalds. Controlling helps the MacDonalds employees in coping with uncertainty and come up with effective response. Through control, it is possible to manage the delivery and ensure everything arrive in time while at the same time maintaining quality. Also, the function helps in ensuring that the staffs are provided with supervisors to ensure their efficiency is enhanced. Through control, it becomes possible to ensure that the employees spend their time in a productive manner. Through staff control, the managers can determine the time employees arrive at work and the time they leave. The manager is well to reduce the less productive staff and also enhance the work life balance. The manager is also able to monitor the production of burgers and ensure that they meet the right quality. 4.1 Produce a set of clearly defined operational outcomes for a typical McDonalds, and explain why those you have chosen are important The most vital outcome for MacDonalds is: Profit per week-This is the weekly difference in revenues and the costs of production and distribution for the goods and services. This to McDonalds is an indicator of their financial gains on their business activities. McDonalds requires high profit since it is the main goal for any type of business. Wastage- This refers to the material resources and time used without adding any value to the final product or service. McDonalds can calculate the amount of unused products, time to determine the main customer need. This can also help in determining what the customers need more. Daily expenditure- This is amount of expenses per day at McDonalds. It is vital for McDonalds to know the amount of revenue they spend daily in their operations based on the number of customers and processes performed. By knowing the amount they spend daily, McDonalds can come out with ways to reduce the costs. Daily number of customers- It is vital for McDonalds to know the number of customers they serve daily. This will help them to adjust to the situation and come up with future forecasts. By knowing the number of customers they are able to serve, they can make come up with the required number of staff and also cut the costs. Revenue flow-This refers to the flow of revenue in real time. The restaurant has expenditure such as payment of salaries, bills, rent among other services. The difference between the cash being received and the disbursements is the revenue flow. This is vital for the business as they count their annual revenue and come with ways to cut costs. 4.3 Explain how Quality could be best defined, used and maintained by McDonalds UK to control their many franchised restaurants throughout the country McDonalds works based on Japanese quality management. The restaurants are managed based on franchise system. Every McDonald restaurant outlet has high standards. The restaurant is able to provide meals and services at low prices in all their outlets. The restaurant has been offering high quality meals at standardised prices in all outlets. The restaurants are expected to prepare plans so as to keep prices at the same category in all restaurants. The logo is maintained similar and all products offered are same. How can McDonalds make each restaurant to be so similar even if they are all franchise? To set up a new franchise, it costs about 250,000 £. This is an estimated 40% of the entire costs. The commitment to pay shows the ability to pay rent for the building, buy equipment and look for staff. McDonalds should be standard and all rules must be maintained similar in all outlets. This implies that the staff must have the same level of training in all outlets. If one is able to do all these right, they can be allowed to open a franchise. The owner of a franchise signs a contract with all rules. McDonalds is responsible to check the contract and ensure the owner follows it. McDonalds also offers training to the staff through the McDonalds University. When operating a franchise, owners cannot make some of the decisions such as changing the staff uniforms or changing the logo. All franchise operating under McDonalds must have the same logo which shows dependability. Customers appreciate the uniformity since the products offered in one country outlet is same in another country McDonalds’s outlet (McDonalds official website, 2016). This also simplifies the consumer choice and ensures quality. Conclusion To sum up, McDonalds have been able to use operations management for their success. It is important for McDonalds to use CPA and linear programming to enhance their profits while minimising the resources used. McDonalds can use process planning to continue reducing their costs and attain cost advantages. The organisation must continue managing their operations since they have a great impact on their strategy. References Krajewski, L.J., Ritzman, L.P. and Malhotra, M.K., 2001. Operations management (Vol. 8). Prentice Hall. Lockyer, K.G. and Gordon, J., 1991. Critical path analysis and other project network techniques. Beekman Books Incorporated. Love, R.R. and Hoey, J.M., 1990. Management science improves fast-food operations. Interfaces, 20(2), pp.21-29. McDonalds official website, 2016, Home, Retrieved 19th February 2016 from, http://www.mcdonalds.co.uk/ukhome.html. Najdawi, M. K., Chung, Q. B., & Salaheldin, S. I. 2008. Expert systems for strategic planning in operations management: a framework for executive decisions. International Journal of Management and Decision Making, 9(3), 310-327. Shibagaki, K., Trevor, M. and Abo, T., 1989. Japanese and European management: their international adaptability. Univ of Tokyo Pr. Read More