The Goal Effects of New Tools on the Operation Management Practices - Research Paper Example

? The Goal – Effects of New Tools on the Operation Management Practices [Supervisor The Goal – Effects of New Tools on the Operation Management Practices The Goal is a fictional book revolutionizing the Business Management practices all over the world. It was initially published by Goldratt and Cox in 1984. However, it was reassessed and republished twice – in 1992 and 2004. This was due to changes in the older tools in business and operations management practices (Goldratt & Cox, 1992). The Theory of Constraints was the highlighting issue of the book which also has an intriguing story line attached to it. The main character of the story, Alex Rago, faces both professional and personal life issues that push him to the verge of failure. Alex is given a time constraint of three months in which he has to save his plant from collapsing. In the course of saving that plant, Alex meets an old colleague named Jonah (a physicist). Jonah helps Alex save the plant by guiding him to the right path (Goldratt & Cox, 1992). The concept applied in The Goal was from the new practices applied in today’s world. There was a theory named the six-sigma theory which focused on the concept of continuously improving the quality of production and eliminating the waste products just like the lean production concept. Both the concepts were merged and applied in the book (Jacob, Bergland, & Jeff, 2010). However, in the recent years new tools and practices have been introduced based on the use of the Internet as web based business applications. E-commerce is also known as buying and selling of goods or services through the Internet technology. This new trend has increasingly gained popularity, thus changing dynamics of businesses by providing high satisfaction (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). Now businesses interact by making transactions around the globe in minutes, reducing their operational costs and eventually leading to generation of high revenues. Presently, the orders placed are high in volume as the market is demand driven and the orders are placed more on the basis of Customization category using just-in-time (JIT) rather than batch process system. The business to business (B2B) transactions are gradually changing as the trend is shifting towards business to customers (B2C). The cost of Internet technologies and databases is often high because of which the cost of inventory is increased (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). The new tools play a vital role in determining what steps Alex would have taken if they were taken into consideration after defining the goal of increasing net profits, return on investment, and the positive cash flow. Alex would have looked at the market conditions for ascertaining the demand for the product and subsequent estimation of orders (sales) at a given period of time. Based on this concept, the inventory costs would be calculated (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). Based on new tools systems of today, Alex would have a different goal overall. Based on the prior information about Alex’s goals on increasing profits, Alex would focus on the marketing of the company and providing high customer satisfaction. High customer satisfaction involves customization of the product. The Clientele approach would be taken into consideration at this point, i.e., having more clients to satisfy and relatively less orders to take. However, in case of Alex orders were high from one client with price remaining the same but the operations of business processes and costs were managed through altering manufacturing process. The marketing approach would lead to focusing on creating awareness of the service which the company has to offer and the cheapest form of marketing would be used that is the internet to save costs (Goldratt & Cox, 1992). In this book, it has been said that anything invested into the business including assets used in the system to make sales are considered as inventories of the business. In order to have a high throughput (rate at which the business generates money from its sales), the system needs to have a low inventory cost. Looking at the new tools, Internet technologies are expensive and investment into these processes would ultimately increase the cost of the inventory leading to a low throughput. Moreover, since now the operations are demand-driven, therefore, this will result in sales being relatively low and increasing the cost of production. Hence, higher is the cost of doing business and lower is the net profit generated (Hourigan, 2001). The production techniques are dependent on the nature of goods being manufactured. Alex sells its customers the products in small batches of 250 every per week. This ultimately decreased the amount of pressure on the machinery. Furthermore, customers were content as their inventory levels were maintained low thereby reducing holding up costs. However, for customization this process cannot be used. The production of one product at one time would waste the energy and resources of the machinery leading to high costs (Hourigan, 2001). Electronic Commerce (EC) has facilitated all types of businesses to grow and increase their market share. Alex’s company was in turmoil due to the operations being managed inefficiently. Therefore, the investment into the Internet technology would have been useless. If the sales were rising, then it would have led Alex into more trouble as the production costs and inventory costs would have risen in that case (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). The operations’ objectives in Alex’s position were to manage inventory by reducing it, reducing operating expenses and increasing the throughput. EC would have raised the inventory costs, operating expenses and reduced the throughput. Due to the investment made in the technology, higher sales using one plant for manufacturing the goods and the total throughput reduced (Hourigan, 2001). If Alex has a high clientele due to EC then he would have to invest more into the machinery to meet the demand, consequently, this would raise the inventory level and jam the inventory. Looking at the situation in the book, the order is high but will be sent in batches, as the capacity to produce the goods is less. This brings in the bottleneck concept which suggests, “A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it and a non-bottleneck is any resource whose capacity is greater than the demand placed on it” (Hourigan, 2001). Alex tries to balance the flow of product through the plant rather than balancing capacity with the demand. The point is not to run the plant more but to make them run more effectively. Goods are produced in batches so that the quality of the products is not affected (Jacob, Bergland, & Jeff, 2010). The use of new practices would have been through the business process perspective. The business process perspective allows for workflows and business transactions facilitation making the process move smoother. This process helps businesses to keep low inventory level, making processes faster and sending messages for the reordering level. Labor is not required for this job hence reducing costs in the long-term. A fixed investment is required at once for the system to work. Services industries have grown over the last few decades. This is the outcome of the rise in demand of customers and the high quality of goods. To provide high quality and quick service facilities, the EC helps this process as information is fed into the system and quality control systems are used, and a standardized product is made. Alex will use these processes since they led him to the goals he tried to achieve in the book, which is the goal of continuous improvement. The high-quality of the productivity as well the customization of both newer and old tools can be used by the Total Quality Management (TQM) system. This system claims to support team working, where groups are trained to perform, be responsible, and set the task productions. This system involves the client, seller, and producer together in the process (Jacob, Bergland, & Jeff, 2010). The communication and online perspective in the EC take place when the information, products, payments, and other electronic means are delivered efficiently. Payment methods are made easy through the online perspective, which helps in facilitation of the cash flow of the business. Moreover, it can expand into a larger market area and be able to achieve large orders (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). In Alex’s situation, the focus was on reducing the inventory levels and cost of sales. Moreover, sales were not required to be increased as saving the plant in the next three months was the main objective. Setting up goals is extremely important as they determine steps and processes that a business decides upon and then implements. To improve the inventory and production costs, communication and online selling are not required (Gunasekaran, Marri, McGaughey, & Nebhwani, 2002). References Goldratt, E. M., & Cox, J. (1992). THE GOAL - A process of ongoing improvement. Great Barrington, MA: North River Press. Gunasekaran, A., Marri, H., McGaughey, R., & Nebhwani, M. (2002). E-commerce and its impact on operations management. International Journal of Production Economics, 185–197. Hourigan, C. (2001). Summary of The Goal: A process of ongoing improvement. Retrieved on August 12, 2012, from http://maaw.info/ArticleSummaries/ArtSumTheGoal.htm Jacob, D., Bergland, S., & Jeff, C. (2010). Velocity: Combining Lean, Six Sigma and the Theory of Constraints to achieve breakthrough performance - A Business Novel. NewYork : Free Press. Read More