Operations Management - Essay Example

?Operations Management In order to achieve and sustain a competitive edge in the market environment, every firm must attempt to achieve consistency in its manufacturing or service delivery in all aspects. Therefore, the firm must identify areas that are necessary for inclusion in the operations management plan; plan on the approach to take in order to achieve the stated objectives; implement the strategy in accordance to the guidelines formulated in the planning stage; monitor the process; and improve by making corrections and adjustments to the process. If a firm can succeed in maintaining the operations management cycle for a sustained long period, then the firm is likely to achieve long term success due to preparedness to keep up and cope with market changes. Market changes include both macroeconomic and microeconomic market changes, both of which have an effect on a firm’s operations (Khan and Shah, 2011). Macroeconomic factors include changes in the aggregate economy of a vast geographical region including political changes; economic changes; social changes; technological changes; ethical changes and legal changes. Economic factors include the effects of the economy on business; social factors include changes in beliefs and perceptions as they relate to the business; technological factors centre the changes that affect the production process. Ethical factors include changes in perceptions of the difference between moral rights or wrongs; and legal factors are aspects of policy and legislation that have direct or indirect effects on the market. Microeconomic factors are the changes that occur in the market or industry and involve stakeholders like customers, suppliers, competitors and the public (Wong and Wong, 2007). A company must endeavour to satisfy the needs of customers, who are the core source of revenue for business; and attract and retain the attention of the public, which is composed of potential customers and investors. In addition, a company should build its credit worth to increase the likelihood of obtaining credit from suppliers even in the absence of funds to make cash purchases (Grafton, Lillis and Widener, 2010). The general idea is that a company should strive to align its inner environment with the changes in the outer environment. According to Slack, Chambers and Johnston (2007), a company should identify its level of success in the five main performance indicators including price, quality, speed, dependability and flexibility. This essay highlights the advantages and disadvantages of basing a performance management system on these five operations objectives. Implementation The first step towards implementation of a performance management system based on the five core performance indicators is an analysis of a company’s current performance against the expected performance. The aim of implementing such a system is to narrow down or close the gap between these two phenomena; the strategy being the use of these indicators to achieve and retain a competitive edge in the face of a rapidly changing market. However, many scholars argue that the system should not be geared on achieving full functionality but a firm should focus on one aspect and do it to its best capacity. Specialisation enables a firm to perfect one aspect of its performance and uses it to outdo the competition in the market; especially by having a competitive edge derived from its effectiveness to achieve the optimal result in a performance indicator. However, using price, quality, speed, dependability and flexibility has merits and demerits (Zeydan and Colpan, 2009). Cost Optimisation of the performance indicator of cost has direct monetary benefits to a firm, as it enables the firm to reduce the cost of production by cutting down on inputs, mainly by adopting the use of cheaper alternatives or by reducing the quantity of input but maintaining the production output. In this case, the firm has the capacity to achieve high profit margins due to a higher difference between revenue and expenditure. Moreover, it has the capacity of forcing a firm to adopt efficient manufacturing practices since the goal is to maximise output at minimal costs. The low costs act as incentives and customers buy products in large quantities, and the firm benefits from the economies of scale that result from bulk business transactions (Zeydan and Colpan, 2009). On the downside, cutting costs may result in inconveniences and require the firm to make compromises that may have a negative impact on business, resulting in losses instead of profits and inefficiency instead of efficiency. For instance, cutting costs requires a firm to reduce its expenditure on inputs like infrastructure, research and development, labour and others. Cutting down on infrastructure maintenance and upgrade is likely to result in losses since employees would use out of date equipment, with the expectations of producing the same volume as when the system is fully operational. The failure to achieve targets is demoralising for employees, and reduced satisfaction at the workplace reduces their output, and may increase the rate of employee turnover. Moreover, reduction in operating costs requires workforce downsizing, which results in loss of jobs. Cutting costs predisposes a firm to loss of the quality standards of its products, since the main aim of the firm’s operations management is cutting costs; usually in total disregard of the negative effects of doing so (Kao and Hwang, 2010). Quality Quality assurance and quality improvement are the two main approaches for taking advantage of quality as a performance indicator. This indicator is suitable for markets where customers are concerned about the quality of the product rather than price. This indicator enables firms to offer high quality products that are free from errors and are true to the description given by the firm. Moreover, customers for firms that use quality strategically are assured of continuous improvement in product quality. In addition to product quality, firms that specialise in quality have a record of exemplary customer service, and their customers are unlikely to buy the products or seek the services of competing firms. However, high quality products are usually associated with high prices; mostly due to the number of resources committed towards the production of a single product. The increase in price causes a reduced volume of sales; though this deficit may be covered by the high prices, this is highly unlikely since the higher the prices rise the more a product becomes a niche product for a select group of premium price customers. Reduced volume of sales reduces the gross revenue for a firm from a product, and due to the increased cost of production, profits are reduced, and a firm may suffer losses. Specialisation results in products of stellar quality but reduces a firm’s market share, since most customers for consumer products are found among the lower middle class and the poor (Beamon and Balcik, 2008). Speed Specialising on this performance indicator enables a firm to take short periods in all transactions with customers, such that a customer requests for a product and within a remarkably short specified period, the product or service is made and/or delivered. This indicator enables a firm to have quick response to customer requests; and acts to save the customer time and that of the firm, mainly by minimising the period spent on unproductive or poorly productive tasks. Time economy is an appropriate approach to competition, especially in today’s world where people want all things to be done at neck break speed. However, concentrating efforts on speed has its limitations as well; mainly due to the extra work that a firm has to do in order to minimise the time spent between tasks. Quality is the first victim of a hurried service or product delivery, as the producer spends less time with the product in the race to keep up with customer needs. In addition, the hurry causes fatigue in employees, which in turn predisposes then to industrial injuries that are sometimes debilitating or life threatening. The quest to achieve speedy performance results in increased costs of doing business as the firm makes errors during the rush to beat deadlines; moreover, the technologies and work force required to complete tasks in a speedy environment makes the costs of production prohibitively high. The quest to achieve more with the current company resources exerts pressure on company resources like human resources and infrastructure; and may cause reduced efficiency in the long run (Neely, Gregory and Platts, 2005). Dependability When advertising or in any communications with potential customers, firms make promises in quotations and other forms of financial documents concerning the level of service or product delivery to customers. Some firms specialise in keeping their promises to customers, and are reliable in terms of giving customers the product they have asked for, in terms of time, quantity, form and other aspects of the product. Therefore, customers to firms like these have the assurance that their requirements will be met as long as they are within the company’s capacity. Dependability is an appropriate characteristic for a firm in an oligopoly or a monopolistic market; today’s competitive markets require firms to make improvements to their products. Continual improvements to products and services enable firms to over-deliver on their promises to customers. This means that a firm that depends on its reliability to keep its promise to customers as a strategy would be at a disadvantage in a competitive market, since other firms would be willing to give higher quality services and products to customers. Moreover, concentrating on reliability as a strategy limits the capacity of a firm to work on other performance indicators including reduction of costs, quality improvement, and efficiency. High costs of production would result in expensive products; and when coupled with poor quality and delayed delivery, causes a reduction in a company’s revenue and profit margins (Braz, Scavarda and Martins, 2011). Flexibility This is the ability of a firm to adapt its operations to changes in the market environment, with an increase in flexibility increasing the ease in transitions. First, flexibility allows a firm to adjust the capacity of its production by increasing or reducing production volume with increasing and reducing demand respectively. Secondly, it allows a firm to have the capacity to change the production time, such that urgently needed products can be produced at a faster rate than products without a definite period. Thirdly, flexibility allows a firm to change the mix of products and services produced according to customer requirements. This enables the firm to deal with the heterogeneous nature of customers by taking care of their unique needs. Finally, flexibility results in high rates of innovation and invention that result in the introduction of new products and services. The overall effect of flexibility is to enable a firm to adjust to personal requirements of consumers, seasonal changes in volume and other characteristics of demand, and keeping up with increased and changing trends, tastes and preferences of consumers in the markets (Fleming, Chow and Chen, 2009). However, flexibility has its downsides as well, and unless a firm takes corrective measures, using flexibility to acquire and maintain a competitive edge can be a tricky and expensive process. For instance, it is impossible to establish process, technique and product standards for a flexible business since these factors keep changing with changing needs. In addition, the processes involved in changing the pace, approach and other aspects of production are wasteful, and a sizeable amount of resources are lost without any output. In order for a firm to cover for these costs, a firm is forced to increase prices of products, which reduces the demand for products and may end up resulting in losses. Production of new goods and services and changing product characteristics limits the levels of quality that a firm can achieve, mainly because the firm does not have enough time to improve on a product before changing it. Therefore, customers for such a firm always get substandard products since the products are usually in early stages of development (Fleming, Chow and Chen, 2009). Limitations of Using Operations Objectives It is impossible for a firm to achieve excellent performance in all objectives at once; on the other hand, as seen above, concentrating on one objective reduces a firm’s performance in others. If a firm concentrates in one or two of the objectives, there is a high likelihood of the firm being overtaken by other firms, mainly due to changing customer expectations and preferences. For instance, if a firm had focussed on quality, it may lose its customers if current trends focus on cost. Therefore, in order to retain customers, firms should always consider two objectives that usually go together; for instance quality and dependability, as customers would know that, despite rising prices, they could count on the firm to deliver high quality products (Wong and Wong, 2007). Another limitation of focusing on performance objectives is that the target customers many not be interested in the objective that a firms intends to fulfil; and the firm’s efforts are wasted in endeavours on which customers may not be keen. For instance, there is no need for a firm that targets high-end markets to cut costs since its customers are not worried about high prices; in addition, cutting costs may cause real or perceived loss in quality and the firm would lose market for its products. Moreover, firms that focus on one performance objective could lose customers to emerging firms that take a holistic approach to service delivery, striving to fulfil all the performance objectives to an optimal level. Though it is impossible for a firm to achieve the best performance in terms of all performance objectives, many new firms have proved that with the correct approach a firm can achieve acceptable performance in all the objectives (Beamon and Balcik, 2008). During the implementation of operations management strategy, the management of a firm should consider the effect of emerging technologies on company strategy. This is a significant factor since the rapid development of information technology has played a central role in driving economic changes in the recent years. Technological changes have an effect on the cost and process of production, and even firms that do not specialise in cost objective should strive to acquire the latest technologies in order to take advantage of their cost cutting effects. In addition, a firm should consider current legislation and forecast possible changes in legislation that may have a direct or indirect effect on production. For instance, a cost reducing firm could take advantage of tax cuts and other legislation that allow tax exemptions, enabling the firm to reduce the prices of its products further (Beamon and Balcik, 2008). Conclusion The business environment has become more competitive than ever, and firms need to adjust to keep up with the market changes. According to Slack, Chambers and Johnston (2007), a firm should adopt one or more of the performance indicators including cost, quality, speed, dependability, and flexibility and work on it in order to acquire and maintain a competitive edge against other firms in the industry. However, due to the numerous limitations of adopting these objectives, the firm should work on a balance of these objectives such that the shortcomings of one of them are offset by the strengths of another. Moreover, a firm should monitor the implementation in order to gauge the effectiveness and success of an approach, and make modifications and improvements before the negative effects reach a destructive level. In addition, since it is impossible to work on all of the objectives at once, the firm should select the ones that give it the greatest chances of surviving in the current market environment. References Beamon, B.M., & Balcik, B. (2008) "Performance measurement in humanitarian relief chains", International Journal of Public Sector Management, vol. 21, no. 1, pp.4 – 25. Braz, R.G.F., Scavarda, L.F., & Martins, R.A. (2011) ‘Reviewing and improving performance measurement systems: an action research’, International Journal of Production Economics, vol. 133, no. 2, pp. 751-760 Fleming, D.M., Chow, C.W., & Chen, G. (2009) ‘Strategy, performance-measurement systems, and performance: a study of Chinese firms’, The International Journal of Accounting, vol. 44, no. 3, pp. 256-278. Grafton, J., Lillis, A.M., & Widener, S.K. (2010) ‘The role of performance measurement and evaluation in building organizational capabilities and performance’, Accounting, Organizations and Society, vol. 35, no. 7, pp. 689–706. Kao, C., & Hwang, S.N. (2010) ‘New concepts, methodologies and algorithms for business education and research in the 21st century’, Decision Support Systems, vol. 48, no. 3, pp. 437–446. Khan, K., & Shah, A. (2011) ‘Understanding performance measurement through the literature’, African Journal of Business Management, vol. 5, no. 35, pp. 13410-13418. Neely, A., Gregory, M., & Platts, K. (2005) "Performance measurement system design: A literature review and research agenda", International Journal of Operations & Production Management, vol. 25, no. 12, pp.1228 – 1263. Slack, N., Chambers, S., & Johnston, R. (2007) Operations management, Prentice Hall/Financial Times. Wong, W.P., & Wong, K.Y. (2007) ‘Supply chain performance measurement system using DEA modelling’, Industrial Management & Data Systems, vol. 107, no. 3, pp.361 – 381. Zeydan, M., & Colpan, C. (2009) ‘A new decision support system for performance measurement using combined fuzzy TOPSIS/DEA approach’, International Journal of Production Research, vol. 47, no. 15, pp. 4327-4349. Read More