Operational Planning and Control - Term Paper Example

1 Operational Planning and Control The success of a business depends on how effectively a company uses its resources and maximizes production as perthe market needs to meet its targets. In order to maximize one’s own production and profitability in business, it is essential that comprehensive planning on location of its production facilities is done to realize the benefits. This will include operational planning of labor, material, and machinery to achieve the best possible product mix ratios. Jatinder N D Gupta, et al., (5 June 2006) suggest that a number of systems and equations are systematically adopted and are used for maximizing production plans and control. Ansoff (1977) stated that formal planning systems have always existed in businesses. Successful companies have always been practicing sound and quality planning. According to Sord and Welsch (1958), poor planning will lead to failure in the organizations. Planning itself is a multi-layered task. In a number of cases the operational planning is influenced by external forces and the internal systems hardly have any control on the job that is being carried out. The influence starts from something as simple as the quantity requirement that has come from the marketing to the supply side failure that resulted out of a natural or human cause. There are also cases where the planning is affected by the quality of goods supplied to the company by the vendors especially in case of natural resources like minerals (A V Ahmetzyanov, et al., Aug 2002). Lastly the geography of production will determine the supply chain that will evolve around it. Indeed today the multinationals operate globally and therefore it is not unusual to find materials being sourced from country A for production in country B for supply to country C, D etc. There are several theories about Production. 2 Theories of Production The Absolute advantage theory was originated by Adam Smith, the father of modern Economics, and he proposed that one should produce in a place where one can be most efficient and should trade where production is marked by inefficiency. By and large this theory is in practice today. (Smith. Adam, 1776) The Comparative Advantage theory states that production should be decided on basis of relative advantage and if advantage is unavailable one should import rather than produce even if efficiency is more than that of the exporting nation. (Ricardo. David 1817) The limitation of all the classical theories is that they ignore other factors like incomes, prices government regulations, and policies which can and will effect the business decisions. In contrast Heckcher (1919) and Ohlin (1933) theorized that one should produce and export goods from locally abundant factors of inputs and import those goods for which these factors are costly locally. This theory too ignores other factors that can influence relevant matters. Wassily Leontief (1953) developed his Paradox theory that states that Government policies affect availability of input factors as well as capital and labour. This is too totalitarian in approach. The Country Similarity theory advocated by Linder (1961) extended the previous theories by adding that nations with similar demand pattern trade with each other. The Product Life Cycle theory by Raymond Vernon (1966) concluded that there are four stages of lifecycle of a product and international trade is related to them. In the first innovation stage the product is developed in its home country; in the second when it reaches its growth level it is produced in another developed country; when it is in maturity it is produced in a developing country and in the last stage where it reaches the declining stage of its life it may be produced just anywhere. This is how international trade in a product takes place even today. Kevin Lancaster (1980) projected that in his Market Imperfection theory the nation gains from its vantage point of specialization and economies of scale and having the first mover advantage takes centre stage with the assistance of the government. Here the use and need of the government factor is the limiting factor. Michael Porter (1990) put forward the Diamond Theory in which he stated that Basic Factors like natural resources, climate/location, and demographics when added to Advanced Factors like communications, skilled labour and technologies help in efficient production. This product is in high demand by sophisticated consumers looking for quality and innovations and firms cater to them and each feeds on the other to create International trade. There are other factors in the Diamond like related support industries, strategies in marketing, international, and domestic competition that either hinder or help in promotion of trade. These factors contribute to a company’s competitiveness. This theory has its pros and cons and needs further expansions. The diamond needs re-enforcement by adding two layers of International Trade and Global Trade with further factors built in. But this is a good base to start from. 3 Political Economy of International Trade Keeping in mind the above theories a corporate has to view the external factors that will have profound influence on its production plans in a host country. 4 Political, Economic, Cultural Motives of Host Countries At times the plans may be in conflict with the host country’s foreign policies and human rights need to be looked at closely. Local industry is at times required to be protected and national security concerns are to be addressed as well. Interventions are performed to keep check and balance in accordance with policies to regulate these activities. In addition there can also be issues of local culture being unduly influenced due to the International trade movements and this may need to be curbed or handled to protect the host country’s heritage. 5 Instruments of Trade Interventions are made through raising barriers by discouraging trade and production. This is done by raising tariffs, granting subsidies, levy of anti-dumping duties, fixing quota limits, voluntary export constraints, fixing local content requirement and laying down various kinds of administrative policies. These instruments or regulation can effectively block production plans. 6 International Monetary System Money is a necessity without which economic choices will be restricted. It gives a freedom of choice. There has to be a minimum stability otherwise the fluctuations can affect production cost severely. 7 Social Cultural Factors International Business is also affected by cultural factors. The culture and its consequences on individuals and companies determine the outlook on business ethics. This in turn effects decisions and policies. The six important elements of culture are Religion, Education, Economic Philosophy, Language, Stratification, and Political Philosophy. An improper understanding will deprive a corporate from employing the right managers and workers. 8 Intellectual Property in International Business Business means trust. And trust inspires confidence. Organizations have unique products and processes which they bring to the market after extensive research and effort and at great cost. They obviously feel threatened if these are blatantly copied by others at no cost without payment of royalties and without permission. This must be factored in while transferring technology to production sites in the host countries. 9 Conclusions Locating Production centres in host countries is lucrative from the cost effectiveness angle, and also on basis of a better managed supply chain especially when both suppliers and consumers are in vicinity of the production unit. However other external factors that have been enumerated above must be kept in mind before taking a decision in this direction. In current global environment where all emergent economies look very promising, the barriers are being reduced or eliminated as a gradual process. But the greatest barrier of cultural diversity still remains. This needs to be addressed with due diligence for the eventual success of the business. Bibliography Ahmetzayanov, A. V. and Kulibanov.V. N., Aug 2002, Operational Planning and Control of Oil Production in Oil Field Development, Springer Science+Business Media LLC, Vol 63 No. 8, pp 1209-1216 Ansoff, I H., Estratégia Empresarial. São Paulo: McGraw Hill, 1977 Gupta, Jatinder, N D., et al, 5 June 2006, Operational Planning and control of Semiconductor Wafer Production, available at: http://www.upv.es/gio/rruiz/files/Gupta1.pdf#search=%22operational%20planning%20and%20control%22 Heckscher, E. 1919. The effect of foreign trade on the distribution of income. Ekonomisk Tidskriff, 497–512. Translated as chapter 13 in American Economic Association, Lancaster, Kelvin. “Intra-Industry Trade Under Perfect Monopolistic Competition.” Journal of International Economics, 1980 10(2): 151-175. Linder Burenstam, S ., (1961), An Essay on Trade and Transformation, Almqvist & Wiksell, Stockholm Sord, B. and Welsch, G. (1958). Business Budgeting: A Survey of Management Planning and Control Practices. New York: Controllership Foundation Leontief, W. et al. (1953), Studies in the Structure of the American Economy, White Plains, NY: International Arts and Sciences Press. McCarthy, E.J. (1964), Basic Marketing, Richard D. Irwin Homewood, IL. Miller. David., et al eds, The Blackwell Encyclopaedia of Political Thought (Oxford, 1987) Ohlin, B. 1933. Interregional and International Trade. Cambridge, Mass.: Harvard University Press, 1966. Porter, Michael.  1990.  The Competitive Advantage of Nations.  New York:  Basic Books.  Ricardo. David., The principles of political economy and taxation 1817 Smith. Adam., The Wealth of Nations, London 1776 Vernon, Raymond, The Quarterly Journal of Economics, MIT Press, 1966 Read More