Operations Management as a Transformation Process - Coursework Example

Understanding Operations and Process Management – 678 words Introduction: Operations Management as Transformation Process Operations and process management (Hereinafter “OM”), defined as “the creation of customer value through effective and efficient management of processes”, plays the crucial role of efficiently managing business inputs, converting them into value-added outputs, thereby producing the firm’s final product and generating profits for organisations (Klassen 2005, p. 1.). As a value-creating process converting inputs into outputs, OM involves a “transformation process”, encompassing critical functions – strategies, systems, and processes – necessary for improving organisational performance (Schroeder 2004, p.3). Figure 1 The Transformation Process Source: Schroeder (2004, p.12) Hence, it brings value to the firms, in the form of profits by raising its productivity and the ratio of inputs to outputs (p.3); and to customers in improving the quality of products (Klassen 2005, p.1). The Transformation Process through Time As a transformation process, OM evolved from the production systems used during the Industrial Revolution known as craft production where highly-skilled artisans individually manufacture goods using simple tools to produce high-quality customised products (Finch 2004, p.7). During these times however, process management was not considered as an integral concept within production, such that individual workers were given free reign on their crafts, resulting to a slow and costly production process lacking uniform standards necessary for effective and efficient operations (Stevenson 2005, p.19). It was not until Taylor’s introduction of scientific management, that processes were given attention in business operations (p.19). Adopting Taylor’s proposal that there is “one best way” to accomplish tasks workers must follow, Ford developed the “assembly line” in manufacturing his T-Model, which introduced mass production and the concept of interchangeable parts, revolutionising the automotive industry and generating tremendous cost and time savings (Finch 2004, p.8). As Ford describes it, this new manufacturing process is “constrained only by the capabilities of the workforce and existing technology” (Chase, Aquilano & Jacobs 2006, p.16). While Ford’s production processes increased productivity and efficiency, it resulted to quality deficiencies, especially when compared to Japanese products that were superior to their US counterparts. This spawned the “quality revolution”, shifting OM to focus on designing production processes that improved quality, just as much as productivity and cost-efficiency (Stevenson 2005, p.21). The Transformation Process in Service Industries Apart from the growing importance of production processes, operations management also developed to encompass different industries, stressing the importance of managing processes in manufacturing and services. The need to focus on both industries stems from the fact that these industries are intertwined, such that most firms have manufacturing and service components (Schroeder 2004, p.11-12). Dell Corporation, for example, although well-known as a manufacturer of computers also carries several service components through their fast delivery services and after-sale support functions (Finch 2004, p.26). Furthermore, since services produce outputs either “done for the customer or done to the customer”, managing production processes are therefore as important as the actual output, and are recognised as part of the output, in service industries (p.26). Operations Management as Strategy Aside from creating value, operations management today is increasingly recognised for its strategic business functions (Bettley 2005, p.26). In this respect, the role of operations management as part of the organisation’s business system is emphasised illustrating the need to harmonise other strategic functions with operations management. Figure 2 A Firm’s Overlapping Business Functions Source: Schroeder (2004, p.13) Organisations are therefore interconnected business systems interacting with the internal and external business environments, at the core of which is operations management and its production processes. Strategic success is therefore difficult without such coordination, thus illustrating the strategic functions of operations management’s. Conclusion: Operations Management and the Organisation Operations management is therefore a transformation process encompassing entire organisations, interacting with a firm’s internal and external environment. While transformation processes have always existed, these processes did not effectively raise productivity and quality until the introduction of scientific management and the emergence of the quality revolution. However, aside from contributing to a firm’s productivity and improving the quality of outputs, the growth of the service industry also illustrates the business processes as a separate output, that equally contributes to a firm’s bottom-line. Lastly, with the increasing competition in today’s business environment, operations management also evolved as crucial components of strategy. References Bettley, A 2005, Operations management: A strategic approach, Sage Publications, London. Chase, RB, Aquilano, NJ & Jacobs, FR 2006, Operations management for competitive advantage, McGraw-Hill/Irwin, New York. Finch, B 2004, Operations now: Profitability, processes, performance, 2nd edn, McGraw-Hill/Irwin, New York. Klassen, RD & Menor, LJ 2005, Cases in operations management: Building customer value through world-class operations, Sage Publications, London. Schroeder, RG 2004, Operations management contemporary concepts and cases, 2nd edn, McGraw-Hill/Irwin, New York. Stevenson, W 2005, Operations management, 8th edn, McGraw-Hill/Irwin, New York. Building Supplier Relationships – 655 words Introduction: Outsourcing as a Business Strategy One strategy that firms use, which has gained prominence in the past few years, is outsourcing. With the availability of cheap labour in countries like India, firms outsource non-critical functions to these labour-intensive countries generating savings vis-à-vis the growing costs of labour at home. Successfully implementing such strategy however, involves two critical tasks: determining which functions to outsource and forming profitable supplier relationships by choosing the most compatible suppliers to partner with. Choosing Appropriate Functions to Outsource In today’s business environment, forming partnerships with suppliers is an imperative business strategy firms engage in regardless of its size or available resources (Mentzer 2004, p.2). However, prior to choosing suppliers, companies must first determine which functions or services are best accomplished by others. In this respect, there are two possible criteria to consider: cost efficiency and core competencies (p.50). Insofar as cost-efficiency is concerned, an advantage of supplier partnerships is that it eliminates the need for companies to maintain high investments for non-critical business functions by outsourcing to suppliers that can better accomplish them at cheaper prices. An example is using Integrated Service Providers (ISPs) to provide multi-function administrative and logistical services (Bowersox et.al.2002, p.10). Companies must be careful, however, to ensure that core competencies are not outsourced regardless of price efficiency to maintain branding and critical business functions and products. As defined by Prahalad and Hamel (1990 cited in Jané & de Ochoa 2006, p.5), a core competence is a bundle of corporate skills resulting from “the collective learning in the organisation, to coordinate diverse production skills and integrate multiple streams of technology”, such as Sony’s capability to miniaturise electronics and Philip’s expertise in optical media. Forming supplier relationships by retaining core competencies and outsourcing non-core competencies therefore allows companies to reap the benefits of outsourcing by creating strategic networks throughout the supply chain. Choosing the Compatible Supplier Partners After determining which functions and products to outsource, companies must evaluate potential suppliers based on their “price, quality, service support, availability, reliability, and selection” offerings (p.4). Consequently, these factors help companies choose the best supplier that meets their requirements through objective criteria. It should be noted, however, that aside from determining which supplier can best deliver services at the most efficient price, it is also important for companies to consider their supplier’s ability to engage in cooperative partnerships. Cooperative behaviour, in this respect, is determined by: high levels of trust and commitment; mutual adherence to cooperative norms in achieving mutual goals; high degree of interdependence to develop supply chain solidarity; high degree of organisational compatibility; the need for suppliers to hedge risks and uncertainty; and the extendedness of the relationship towards open-ended interactions (Mentzer 2004, pp.53-56). Thus, by considering the supplier’s cooperative behaviour, companies therefore reduce the probability of a deteriorating partnership. Maintaining Profitable Supplier Partnerships Upon securing partnerships with suppliers, companies must then invest time and effort to maintain these relationships. Maintaining these relationships, however, is not as simple as choosing the correct methods, but rather ensuring that the methods chosen match the type of buyer-supplier relationship. As Bensaou (1999) argues, maintaining supplier relationships requires matching management capabilities with the product’s relationship requirements (p.43). Hence, high requirement products that involve high levels of investment require firms to build trust through frequent visits, cross-functional teams, training, consultants, and other relationship-building activities; while low-requirement products with a minimal amount of investment are best maintained through impersonal contact to ensure that companies do not waste unnecessary resources, in maintaining partnerships with low levels of cooperation. Conclusion: Firms and Supplier Relationships Taking the “extra-organisational view”, forming partnerships with suppliers therefore presents positive opportunities in ensuring that core competencies are “sourced, integrated, and coordinated” properly within the chain (Walters 2002, p.23). Forming partnerships however are not a simple task. Thus, companies must caution in maintaining core competencies and ensuring that only non-core competencies are outsourced to suppliers to minimise the risks that such partnerships carry. References Bensauo, M. 1999, ‘Portfolios of Buyer-Supplier Relationships’, Sloan Management Review, Rprtd 4043, pp. 35-44. Bowersox, DJ, Closs, DJ & Cooper, MB 2002, Supply Chain Logistics Management, Irwin McGraw-Hill, New York. Jané, J & de Ochoa, A 2006, The Handbook of Logistics Contracts: A Practical Guide to a Growing Field, Palgrave-Macmillan, Hampshire. Mentzer, JT 2004, Fundamentals of Supply Chain Management: Twelve Drivers of Competitive Advantage, Sage Publications, London. Walters, D 2002, Operations Strategy: A Value Chain Approach, Palgrave-Macmillan, Hampshire. The Bullwhip Effect and the Supply Chain – 859 words Introduction: The Bullwhip Effect as an Inherent Supply Chain Problem One of the challenges that operations managers face, insofar as supply chains are concerned, is the bullwhip effect (Hereinafter “bullwhip effect”, “bullwhip problem”, or “bullwhip”). Also known as whiplash effect, it refers to the “amplified order variability” of demand as individuals move up the supply chain, generating fluctuations in derived demand upstream even in industries with stable demand (Davis & Heineke 2005, p.10). These fluctuations create potentially paralysing inefficiencies within the chain such that managing the bullwhip effect has become an imperative task for managers (Lee et.al., 1997, p.93). Understanding the Bullwhip Problem To understand the bullwhip effect, it is necessary to stress that the supply chain is an interactive system affected by supply and demand (Davis & Heineke 2005, p.108). Hence, proper supply chain management requires resolving the supply-demand mismatches, which prevents managers from efficiently utilising its resources. An inherent problem within the supply chain however, is uncertainty that companies often respond to by implementing practices such as demand signal processing, order batching, forward buying, and shortage gaming, which although rational decisions from the point of view of individual companies, creates potential inefficiencies such as demand surges, supply shortages, and increased costs for the supply chain, causing the bullwhip problem (Lee et.al. 2006, p.4). For example, in a simple supply chain with a retailer, wholesaler, and a factory, uncertainties such as surges in real demand will prompt the retailer to increase its orders upstream to replenish inventory and cover expected higher demand. Unfortunately, since demand is not constant and current demand cannot give a good indication regarding future demand, the retailer’s forecast will result in distorted demand information. Consequently, distortions exponentially increase with every step upstream until it reaches a point where wholesalers and the factory can no longer satisfy further demand increases negatively affecting the flow of goods and services (Schroeder 2004, p.188). (See Figure 1) Resolving the Bullwhip Problem To resolve the bullwhip, companies often respond by improving coordination and information-sharing across the chain (p.188). The use of cross-functional teams, better information systems, and partnerships are mechanisms that work to increase coordination within the chain. The rationale lies in the fact that these mechanisms increase visibility, making real demand and inventory information available to other companies, forming “a holistic chain”, which allow members to make better-informed decisions (Lee et.al. 2006, p.4). Furthermore, since information distortion also leads to fluctuations in orders and ineffective movement of materials, better coordination and information sharing can minimise demand forecast inaccuracies and prevent excessive inventory, addressing the bullwhip problem (Mentzer 2004, p.20). Figure 1 Bullwhip Effect Example Source: Schroeder (2004, p.187) Information sharing and coordination however, are not enough to resolve the bullwhip problem in industries where forecasts reflect true demand-shifts and rendering information sharing redundant (Schroeder 2004, p.193). In industries with little demand uncertainty and reliable supply, inventory is held in transit, such that information-sharing is not useful unless it improves scheduling across the chain (p.194). Thus, the bullwhip effect is still present when companies cannot react fast enough to the demand-shifts or when the supply chain’s total cycle time takes too long, resulting to poor customer service and inefficient product delivery. In this respect, minimizing the bullwhip effect requires implementing measures that reduce the supply chain’s overall lead time. Some measures include major process simplification; changing the configuration of factories, warehouses, and retail outlets; and cross docking. Dell Corporation: A Supply-Chain Leader A company that successfully dampened the bullwhip through information-sharing, coordination, and reduced lead times is Dell. Beginning with up-to-date demand information gathered very twenty seconds from telephone and Internet orders, Dell shares this information upstream through a secure extranet, giving its suppliers ninety minutes to respond, complete ,and deliver product components to assembly lines. Dell’s on-demand fulfilment based on actual data, as opposed to forecasts, therefore achieves internal efficiency and cost-savings through a reduced inventory and a more efficient procurement system, such that it has reduced global inventory, from 31 days in 1996 to only 4 days, compared to the 30 to 40 day inventory of competitors (Intel Corporation, online). Thus, Dell keeps inventory only during the actual time needed to configure computers and bundle them with peripheral components, delivering them to customers within a week (Barker, online). Furthermore, Dell also improved overall efficiency within the supply chain by sharing real-time information with its suppliers, while improving vendor management and coordinating activities within the supply chain. Conclusion: A Holistic Solution Thus, effective methods to solve the bullwhip problem in one industry are not always applicable in other industries. Hence, companies must carefully investigate the uncertainties and inefficiencies present in their supply chains to devise effective strategies involving all upstream members to effectively minimise the bullwhip effect. Specifically, managers must focus on improving information-sharing, coordination, and shortening replenishment times within the supply chain. It should be noted, however, that “the supply chain is a dynamic system that evolves over time”; hence, companies must not be complacent in addressing the bullwhip, and conduct continuous investigations ensuring that current efforts are still effective in addressing the bullwhip (Simchi-Levi et.al., 2002, p.3). More importantly, managers must realise that the bullwhip problem is a problem encountered throughout the supply chain, such that effective solutions requires cooperation from upstream supply chain members. References Barker, Steve. “The Global, Make-to-Order Supply Chain: Is it Time to Examine Alternative Models?” ARC Insights (2005) Accessed 20 June 2006 . Davis, M & J Heineke 2005, Operations Management: Integrating Manufacturing and Services, 5th edn, McGraw-Hill/Irwin, New York. Intel Corporation. Dell: Building a World-Class Supply Chain Solution. ZDNet (2002) Accessed 20 June 2006 . Lee, HL, V Padmanabhan & Whang, S 1997, ‘The Bullwhip Effect in Supply Chains’, Sloan Management Review, vol. 38, no. 3; ABI/INFORM Global, pp. 93-102. Lee, HL, V Padmanabhan & Whang, S 2006, ‘The Bullwhip Effect in Supply Chains’, In Carranza-Torres, OA & Villegas-Moran, FA, Bullwhip Effect in Supply Chains: A Review of Methods, Components and Cases, Palgrave-Macmillan, Hampshire. Mentzer, JT 2004, Fundamentals of Supply Chain Management: Twelve Drivers of Competitive Advantage, Sage Publications, London. Schroeder, RG 2004, Operations management contemporary concepts and cases, 2nd edn, McGraw-Hill/Irwin, New York. Simchi-Levi, D, Kaminsky, P & Simchi-Levi E 2002, Designing and Managing the Supply Chain, McGraw-Hill/Irwin, New York.    Read More