The Principles of Operations Management - Essay Example

?Operations Management Introduction The holiday company having twelve holiday centers at the beaches in the Mediterranean and the Carribian with their centralized HQ in the UK have decided to restructure their business operations by employing the principles of Operations Management. “Increasing effectiveness will increase revenue by making the organization more competitive. Increasing efficiency will, of course, reduce costs, but this must never be done at the expense of effectiveness” - this is the philosophical basis for operations management (Galloway, 1993, p. 2). This paper seeks to analyze the structure of the business and establish key performance measures for introducing changes to achieve the corporate objectives. Structure of the business Currently, the twelve holiday centers operate on a standalone basis and produce quarterly reports for HQ manually. The company’s decision to automate this process for exercising control on daily basis based on the data from A2, A3 & A4 continuously is a step in the right direction. Performance Key Measures Wangoway et al (2010) state, “Performance of an organization has traditionally been measured by looking at the revenues or the profit made at the end of the year, or using key financial ratios” (p. 859). However, non-financial measures are also important. The centres need to send weekly performance report covering all the key performance measures to HQ. Key Performance Evaluation measures 1. Profits Formula (Net profit / Sales) x 100, i.e. net profit as a percentage of sale for the period. Target 2% increase over the profit during the previous can be kept as a target. For instance, if it was 10% during ’10 for restaurant business, the target is 12% for ’11. Purpose Profit is the ultimate measure for success in any business. 2. Sales growth Formula Increase in sales during the current year expressed as a percentage of sales during the previous year. Target Fixed as in the case of net profit. Purpose Improvement in the business could be measured only with reference to sales. It depends on factors such as effects of advertisements and quality of and efficiency in service. 3. Relative market share Formula Turnover of the company is expressed as a percentage to the total turnover of the industry. Target Industry average could be the target if the company lags behind it. Otherwise, fixation of target is a management task as it is related to capital investment or expansions apart from improving efficiency in the operations. However, improvement over the previous year needs to be the guiding factor. 4. Customer base Formula Increase in the total number of customers serviced expressed as a percentage of the total number of customers serviced during the previous year. Target Fixed as in the case of net profit and sales. Purpose Increase in the customer base is the key to growth in business. 5. Room occupancy rate Formula (n/164*) x 100 Where ‘n’ is the number of days booked. (* 90% of 3-1/2 days in a week) Target Room occupancy depends upon various factors such as climate and general economic conditions, and the range could be 80 to 95%. Purpose This measures the performance in room booking. 6. Food and beverage sales Formula Increase in sales during the current year expressed as a percentage of sales during previous year. Target Fixation of target depends upon trends and targets in room occupancy. Purpose It could be affected due to several factors such as efficiency and pricing, and variance analysis would reveal the causes. 7. Log time in games, fitness and recreation facilities Formula Increase in utilization in terms of hours during the current year expressed as a percentage of hours during the previous year. Target The target needs to be fixed based on the conditions of the equipments and need for repairs and overhauling. It could be related to room occupancy as in the case of food and beverage sales. Purpose The decrease in utilization may mean poor working conditions of the equipment. Also, old model equipments and facilities may not attract the customers. 8. Labor cost percentage Formula Increase in the percentage of labor cost to the cost of sales compared to the previous year. Target Improvement over the previous year should be aimed, in case it is better than the industry average. Purpose For example, if the labor cost in 2011 as a percentage of total cost of sales works out to 35% compared to 37.5% during 2010, it shows improvement in labor productivity or the reduction may be due to increase in sale price. Analyzed to causes, this measure is useful for control purposes. 9. Backlog in payment for supplies and delays in delivery of supplies and services Formula The total amount payable, but not paid as per schedule, can be expressed as a percentage to the total value of purchases. Target Payment as per terms of purchase of goods or services as per schedule. Purpose It shows inefficiency in working capital management. It may result into bad reputation. This leads to delay in deliveries and reduces the management’s ability to negotiate for better prices. 10. Number of complaints received Formula Increase/decrease in number of complaints during the current year expressed as a percentage of number of complaints received during the previous year. Target The complaints are the outcome of customers’ dissatisfaction with the services. It should be kept at the minimum level, if not at zero level. Purpose In the hospitality industry, service quality is very important. This measure reflects the quality of service provided to the customer. If the complaints are few and far between, it could be rectified through proper service recovery mechanism. 11. Customer satisfaction surveys Customer satisfaction surveys, if undertaken at periodical intervals through external agencies, would reveal the strengths and weaknesses of the company. In all the cases, in the absence of clear-cut targets due to lack of information available, industry average could be taken for comparison. Introducing changes 1. Centralized management control The present system of producing quarterly reports for HQ is not enough either for effective control purposes or for taking strategic management decisions for a sustainable growth of the organization. Reservations and booking through internet or phones could be controlled directly by HQ for better control. Also, liaison with other sectors in the hospitality industry or media will be easier. Introduction of CRM techniques and technological applications in the operations Companies use Customer Relationship Management techniques with sophisticated software for maintaining data of the customers. Compiling and storing details about the customers relating to the business is strategically very important for growth. Hozak (2012) states, “Companies in the tourism industry can use radio frequency identification (RFID) for a wide range of applications to enhance their operations and marketing and help provide new and improved services for guests.” 2. Quality of service ‘Quality’ is the watchword in this business. The company has substantial quality problems and most customers do not return for a second holiday. The quality level of the services could be enhanced through proper maintenance and upgrading of the facilities and providing training to the employees. Service recovery Simons (2004, p. 13) states “Service recovery refers to steps that are intended to identify and correct service failures or quality problems”. The service recovery establishes good personal relationship as the customer appreciates management’s efforts. 3. Time sharing concept in holiday centers and resorts The customers usually visit the holiday centers or resorts in holiday seasons. Therefore, booking during the holiday seasons would be full, and many a times the customers are disappointed when they don’t get rooms. The industry sees an opportunity to marketing by persuading the customers to buy time share, and in this case, the rooms remain booked in their names on particular days during the year. Affiliation with other sectors in the hospitality industry The company can enter into mutually beneficial agreements with the hotels, tour operators or social clubs by paying referral commissions since the profile of the clients is more or less the same. 4. Medical tourism In medical tourism, medical treatments are clubbed with recuperation at health centers. This potential could be tapped through affiliations. 5. Evaluation of performance Evaluation of performance and efficacy of the key measures are essential. 6. Budgetary control Proper system of budgetary control needs to be introduced. 7. Sales promotion activities Sales promotion strategy needs to be formulated for effective marketing. References Galloway, R. L., 1993. The Principles of Operations Management. Rutledge: Taylor & Francis Group. Hozak, K., 2012. Managerial guidance for applying RFID in the tourism industry. Interdisciplinary Journal of Contemporary Research in Business, vol 4 (2), [online] Available at http://journal-archieves19.webs.com/18-30.pdf [Accessed 11 November 2012]. Simon, J. V., 2004. Reliability-based analysis of service recovery. The International Journal of Quality & Reliability Management, 21(1), pp. 11-31. Wadongo, B., Odhuno, E., Cambona, O. & Othuon, L., 2010. Key performance indicators in the Kenyan hotel industry: A Managerial perspective. Benchmarking: An International Journal, vol. 17 (6) pp. 858-875. Emerald Group Publishing Limited, DOI 10.1108/14635771011089764. Annexure Annexure – I Operations Management – Structure of the Business Read More