Importance of Operation Management in Organisations - Nestle - Case Study Example

Importance of Operation Management in Organisations Summary Proper management of resources and processes involved in manufacturing or service provision is termed as operation management. The leading organisations all around the world consider it as one of the most important tool for obtaining excellent results. Nestlé, as the largest food and Beverage Company is well aware of this fact. With such a large customer base it becomes really hard to make decision, apart from considering the material gains another factor that mainly determines the company’s decision is its policy of compliance with its principles. By complying with principles does not mean that company has a conservative policy, rather innovation and renovation lies at the heart of Nestlé. Therefore the company allocates a handsome sum for its R&D department. Another aspect of Nestlé’s success story is its tradition of value sharing and addressing to the needs of the native, not by just manufacturing foods of their like but also providing them with opportunities for becoming a part of Nestlé. The purpose of this report is to analyze the importance of operation management in an organisation with respect to Nestlé, and to identify areas of improvement and provide solution through operation management. Introduction: Following the legacy and vision of Henri Nestlé, the company has achieved several awards in the past 148 years of its service. With over one billion sales every day, and the trust that people have in Nestlé, it appears that this company will continue to serve the world for a very long time. The success of the company lies in the dedication, farsightedness of the team and the principles that it follows in business operations (Castellanos et al., 2005; Chü & Cushman, 1995; Heizer and Render 2008; Mintzberg,1989). The Nestlé Corporate Business Principles are at the basis of the company’s culture. Compliance with these principles and with specific policies related to each principle is non-negotiable for all employees and their application is monitored and regularly audited (Peter & Paul 2010). These principles ensure the performance of the company and allow it to maintain world class standards (Hervani, Helms and Sarkis, 2005). Even in the world of rapid change, Nestlé has been able to maintain its position, and the credit of this stability goes to the company’s operation strategy. At Nestlé there are four basic operational pillars (Nestlé 2013). Innovation and renovation is the first pillar, it deals with generation of new products, and providing fresh look to older ones. To maintain operation efficiency, the company believes in frictionless supply chain, and for effectiveness it does not allow its waste products to accumulate creating environmental hazards. Availability of products according to consumer requirements is the third pillar of operations at Nestlé. The third pillar is dependent on the fourth one, as its purpose is to engage with customers and learn about their needs. For a company to attain an impressive record is tough, but maintaining it and to get better is even tougher (Chun et al, 2002; Beer, 2010), and this is perhaps one major challenge that Nestlé has to work with. Every milestone that a company achieves becomes a launching pad for its next pursuit. Therefore, to continue serving billions with satisfaction, it is very important for Nestlé to continue developing newer and better goods for its customers. In simple words it refers to managing operations efficiently. Operation Management: Operation management refers to the sound administration of all the processes involved from obtaining raw materials to providing finished products to the customers (Adam & Swamidass, 1989). For an organisation to survive in a competitive environment, it must establish tools and techniques to properly manage the operations involved (Johnston, 2005; Niar, 1996; Tugendhat, 1971). The processes involved are to be streamlined for obtaining optimum results, without generating unwanted by-products, for this purpose it is important to study every step and ensure positive results; moreover, one must also look out remedying the issues that arise during processin. The purpose of managing all the activities performed by an organisation at different levels is to monitor and modify the approach in such a way that it brings success (Belasen, 2000; Roth and Menor, 2003). Operations can be divided into two broad categories; they are manufacturing operational processes and service operational processes (Chase, 2006; Machuca, González-Zamora and Aguilar-Escobar, 2007; Pycraft, 2000; Zutshi and Sohal, 1997); former being the tangible part, while latter refers to the intangible element. Manufacturing processes involve project processes, jobbing processes, batch processes, mass processes and continuous processes (Goldstein, Johnston, Duffy and Rao, 2002). Project designing and establishing links is carried out in project processes, while jobbing refers to assigning tasks to the employees depending on their skills and requirements of the project (Chamberss & Johnston, 2009; Slack, Chambers and Johnston, 2010). Batch, mass and continuous processes are production techniques that vary with the nature of product, and scale of production (Kerzner, 2013). Under intangible processes mainly assistance is provided to the customers via professional services and customer care services. A company like Nestlé needs to upgrade its operations ahead of time. Therefore, one of the key pillars of operation at Nestlé is innovate and renovate. It is not as simple as designing newer products or giving new look to older ones. It deals with improving manufacturing abilities of the company, and collecting data to understand the requirements of market, and accordingly gratifying the needs of its customers. Another crucial aspect is designing the process, and the scale at which the company wants to introduce its new products (Nestlé 2013). Objectives of Operation Management: Operations are managed to acquire success, however success is not just a single state or form, it is determined at different levels and measured by analysing the objectives attained at various stages of operating train (Daft et al, 2010; Evans, 1997). Generally, there are five objectives that an organisation tends to obtain throughout the whole cycle, and they are quality, speed, dependability, flexibility and cost objectives. To satisfy customers it is important to maintain high standards, therefore, if the quality of product suffers it may lead to drop in sales (Otley, 1994). To uphold a large customer base it is very important to maintain high quality standards. With the invention of hyper production machines speed may not appear as a problem, but to maintain a healthy balance between supply and demand, organisations need to use practices that do not need much time (Heikkila 2002; Stevens, 1989). The streamlining of the process is also important while generating large amount of products. Ahead of launching a product into the market there are several tests that are carried out by manufacturers to analyse check the dependability of a product (Cooper, Lambert, and Pagh, 1997; Lodato, 2008; Ulrich & Eppinger, 2003). It is one of the most important step or objective that every organisation tends to obtain. No matter how old an organisation is, until and unless it does not assimilate according to varying conditions such as market trends, public demand or shortage of raw materials; it is bound to face devastating consequences (Drejer, Bennett and Sohal 2002; Simmons, 2003). So, the greater the flexibility in an organisation, greater will be the success. Cutting down cost of production is something every company is running after, but sometimes this ambition may start affecting the quality of goods (Armistead and Machin, 1997; Flynn, Schroeder and Sakakibara, 1995). A better option is to look for alternates that recommend sustainable production. Moreover, risk free and environmental friendly processes should be opted to gain broad acceptance (Angell & Klassen, 1999; Gupta, 1995). If an organisation is able to attain all these objectives, it eventually earns the respect and trust of consumers, because all these objectives are aimed to satisfy the customers, and this shows how a company or an organisation values its customers. Nestlé has been more or successful in obtaining all these objectives throughout its tenure. This because its determination to follow the principles and comply with law. Every day around one billion products manufactured by Nestlé are sold. To maintain such a large customer base, it has developed more than five hundred manufacturing factories in eighty countries (Nestlé 2013). Providing raw materials to all these production units across the globe is a big task (Lamming, 1996). Therefore, to ensure unblocked supply, Nestlé tries to generate raw materials from local resources. Moreover, with the help of state of the art technology, the company has been able to produce goods according to the demand. To further enhance the mobility of its services, Nestlé has been keen in value sharing. Four V’s: To determine the scale of production is important while managing operations. Production scale is directly proportional to customers demand (Graves, 1993; Rowley & Schneider, 2004; Slack & Lewis, 2002). There is no reason to produce products in bulk when there is no one to buy them. So, volume of products is an important factor to be analysed, because the greater the volume, lesser the unit cost. To entertain a market belonging to consumers from different background, a company must try to provide variety of products to people. However, in this case one must not be over ambitious, because greater the variety, greater will be the unit cost of production. With variety comes variation, and sometimes it proves helpful and sometimes it may result in chaos (Atlay and Green, 2006). Among the four pillars of operations at Nestlé, communicating with customers is one of them. This feedback from consumer side allows the organisation to set plans and design projects. Greater the visibility, greater the unit cost, this direct relation is quiet understandable, because when products are generated in tons no one bothers to look at it, but when some ask for customized product they want to see it transforming. There are almost ten thousand different products that are produced by Nestlé. However, their demand varies from region to region. The range of products is very vast; it includes infant meals, chocolates, coffee, dairy products, desserts, drinks and special diets for diseased. Some of its products are very specific area wise. This is how Nestlé is among some of the very few companies that are being trusted by people all around the globe. Providing variation to product also develop the interest of employees as they get to learn something new and different. Order Winners and Order Qualifiers: Without knowing the public demand one cannot be successful in a business (Kay, 1995). Nestlé is well aware of this fact. As the public is becoming more and more conscious about their health in the same way Nestlé is upgrading system (Prides et al, 2012). It owns seventeen laboratories throughout the world that verify the quality and ensures health to its consumers. Moreover, the company has developed direct links with consumers; it aims at understanding the demand of the people, and tries it best in gratifying their needs (McGuffog & Wadsley,1999; Saraph, Benson & Schroeder, 1989; Waller & Waller, 1999). Where Nestlé aims at providing quality and variety to its customers, it also keeps an eye on the inflation around the world (Nestlé 2013). It intends to produce goods at rates that are affordable to general public. Furthermore, the process of production is designed with utmost accuracy and efficiency which allows production to continue at a constant rate and avoid shortage of goods within the market. In this way Nestlé has been successful in qualifying as well as in winning the orders for past so many years. In simple words people use Nestlé as a trade mark of quality in food and nutrition. Assessment Nestlé is the world’s largest food and beverage company, and by this virtue it is among the most popular brands all around the world. Managing such a large business is not an easy task; however, the scale at which Nestlé operates provides it several unmatched advantages over other companies such as unmatched geographical presence, an enormous portfolio comprising of more than ten thousand product, variety and uncompromising research facilities. Furthermore, there are several factors that drive growth and expansion, such as population which continues to add customer base, globalization and emerging markets. Along-side these advantages and growth promoters, there are company’s principles that lie at the heart of its operations. To ensure greater performance standards the company maintains regular check and balances. It not only monitors the performance of its employees and market trends, but it also upholds the quality of its products. Every aspect of production is regularly scrutinized and upgraded when it needs to be upgraded (Nestlé 2013). As mentioned earlier there are some Nestlé products that are available only in specific regions, one way of improving the existing set up will be to establish Nestlé outlet in all the countries in which it operates. These outlets will provide consumers with all the variety available at Nestlé, whether it is manufactured in the region or not. This will not only provide variety to the people, but will open new areas of expansion for the organisation. Performance objectives such as rapid production and unblocked supply can be achieved by generating exotic raw material within the local environment. With the discovery of genetically modified plants and organisms, Nestlé can become self-sufficient in producing raw materials. Where everything is going so well for Nestlé, there have been some issues that have worthy of concern. In the beginning of the third millennium there were problems related to supply of Cocoa, and many people blamed Nestlé for monopolizing cocoa yield. To deal with such matters Nestlé began facilitating Cocoa farmer, The Nestlé Cocoa Plan is an investment for ten years, it aims at training farmers and maintain regular supply of chocolate’s raw material (Nestlé 2013). Recently Nestlé has been alleged of bottling water from Ontario in Canada without paying its locals (Lendman 2013). Such instances prove that there are factions that aim at destabilizing the organisation at a global scale. Even though these issues have not affected the performance of the company, there is a need to curb such forces to avoid nuisance. Conclusion: Nestlé being one of the most popular brands in the world has to face several challenges on routine bases. The scale of operation is so massive that slightest of error in decision making can result in the loss of billions. Therefore, the company intends to perform all the homework before taking any major or minor step. Nestlé operates in eighty countries, with five hundred manufacturing factories and the total number of its employees is more quarter of a million. With so many loads to bear and to provide job security to all these people, Nestlé needs to plan things ahead of time. Proper management of resources, utilizing the opportunities and designing processes in accurate manner are referred to as operation management. The four basic pillars of operations at Nestlé deal with providing goods all across the globe without blockade of supply, it aims at maintain environmental friendly policies, to address to public demand it engages its customers, and it is always ready introduce produce newer, better and tastier products to its customers. Using these pillars, the company strives to achieve the objectives of operation management. That include rapid production and transfer of products, by engaging customers it obtains the feedback, using state of the art technology it keeps on adding more efficient ways of production and using various analytical tools it maintains a strict quality check. As Nestlé works in region with different cultures and socio-economic environments it needs to cater a huge range of customers belonging to different backgrounds. In this regard it utilizes the four Vs of operation management. First comes the volume, it refers to the scale of production, demand of a good determines its scale of production, anyhow, with such a large following most of the products are produced in large volume, so overall cost remains intact. To accommodate people with different taste, Nestlé offers a huge range of products; there are almost ten thousand products available in the market. Keeping economic imbalances in mind Nestlé maintains policy in pricing of products that allow people belonging to all the segments of society to enjoy Nestlé’s products. Since people blindly trust the quality of Nestlé’s products visibility is not an issue, moreover visibility is only a superficial matter. Anyhow, the company has won the public in such a way that they trust its credibility. Apart from obtaining objectives and applying four Vs into business, policy making is an important element. Nestlé makes its policies on the basis of its core principles that are designed in such a manner that they always abide with law and universal standards, moreover among its key principles maintain and providing rights to its employees is one of them (Peter & Paul 2010). Therefore when a company is considerate of its employees it develops a strong tie between the two and it acts as motivator, which eventually leads to good performance overall. The success of Nestlé is a classic example of operation management. Recommendations: Even though Nestlé is one of the most successful businesses of all times, still there is some room for improvement, which will make the organisation bigger and better. Nestlé should develop its special outlets all around the globe that offer all the available variety of products. As mentioned earlier some of its products are only available in specific regions, so everyone cannot have access to all the products. By establishing such outlets it will allow people to enjoy anything and everything that are made by Nestlé. Moreover, who knows a particular product from some other zone gets hit in another. The availability of raw materials is the first element of operation management, however, there some materials that are not produced everywhere due to several reasons, Nestlé must bring exotic species of plants to countries where it has to import them, and it should involve native farmers to cultivate them. While bringing exotic species would promote the production, use of genetically modified plants and other organisms may also be utilized for generating raw materials in unfavourable conditions. In the past there have been several controversies against Nestlé, therefore the company must strengthen its policies against such issues. 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