The Difference between Operations Strategy and Operations Management - Case Study Example

The Difference between Operations Strategy and Operations Management Introduction In virtually all work-related organisations, management functions refer to a host of operations that exist to improve efficiency. For managers in different divisions to be able to oversee corporate functions successfully, there has to be some focus on long-range as well as short-term corporate objectives. Operations strategies have to do with long-term corporate performance, where the focus is on determining a company’s external threats and opportunities. Strategic operations also comprise of examining internal weaknesses and strengths in order to make the most of the company’s existing conditions. In organizational planning, both management and strategic operations play an important role in determining organisational success; and are considered in the making of important corporate decisions. Operational Strategy in Maclean Highland’s Bakery Maclean Highland’s Bakery is a corporation that has already achieved phenomenal success in its native country, Scotland (Gray 2012). In 2012, it came up with strategic plans that would determine how to target global clients. The company acquired a grant of 95, 000 Sterling Pounds from the Highland’s and Island’s Enterprise to aid with global marketing strategies, the procurement of sophisticated equipment, and the formulation of additional goods (Gray 2012). Operations Management in Maine Made Furniture Company Operations management, also known as tactical planning, tends to be more focused on the realization of short-term corporate objectives. Operations management is usually comprised of comprehensive plans that address day-to-day concerns in an organization (Raturi and Evans 2005). These plans may involve the overseeing of processes that have to be performed for raw materials to be turned into goods. The aim of operations management is to capitalize on efficiency in order to fulfil the needs of clients. For example, in the Maine Made Furniture Company, which manufactures household furniture, operations management includes functions such as the procurement of fabric for sofa-sets, as well as high-grade wood, the recruitment and training of employees, the procurement of tools that would be used in making the furniture, and the making of decisions concerning the layout of the factory in which the furniture would be made (Maine Made Furniture Co. 2014). Contrasts between Operations Strategy and Operations Management It is evident that the main difference between operations management and operations strategy lies in the time horizon required by each of these functions (Gong 2013). Plans made in operations management tend to have a shorter time span than activities planned in operations strategy. Functions in operations management often do not include as many detailed plans as those in operations strategies (Rainbird 2004). Strategic plans also tend to have additional factors such as benchmarks to determine the progress of the plans over a long time span (Pinheiro de Lima, Gouvea, and Jan Angelis 2008). Operational management does not consist of many plans detailing the progress of daily processes. Most operations management plans address issues concerning particular functional subjects such as human resources, finances, and marketing objectives on a basic level (Bettley, Mayle, and Tantoush 2005). In operations management, the performance of the company is usually determined by key performance indicators and not corporate performance indicators. In addition, while strategic plans tend to cover a span of three to eight years, operations management plans tend to focus on the realisation of basic practical objectives that are required for daily operations to continue without hindrance (Brown, Lamming, and Bessant 2004). Operations management may involve determining sales forecasts, manufacturing capacity objectives, inventory concerns, and advertising budgets for quarterly or monthly periods (Bettley, Mayle, and Tantoush 2005). Moreover, the attainment of strategic objectives in any organisation is dependent on successful day-to-day successful operations. This basically means that there has to be the successful management of aspects such as employees, corporate resources, and funds, in order for strategic objectives to be realized. Strategic objectives usually use up a lot more capital than operational objectives due to the fact that they include the creation of new facilities, the recruitment and training of additional employees, the injection of new capital into an untested market, and the introduction of more advanced technologies (Pinheiro de Lima, Gouvea, and Jan Angelis 2008). Strategic commitments of this kind will naturally have long-term consequences on the company’s productivity, and tend to require considerable resource commitments. Strategic operations also tend to require more planners than operations management. For example, if a restaurant wishes to launch international operations, it first has to determine the best location for its facility. This means that it has to select an area where there are many potential customers (Raturi and Evans 2005). The restaurant then has to employ an administrator who will assess its performance; as well as the expected cost of all the new technology it will need to invest in. These administrators also have to consider factors such as government regulations concerning eateries, while providing timely communication on different subjects and keeping track of the new branch’s financial performance (Brown, Lamming, and Bessant 2004). The restaurant then has to invest in the recruitment and training of new waiters and waitresses, cooks, and other workers that will maintain the new facility. Operational planning tends to involve less financial investment. In addition, an organisation’s managers can change decisions about daily processes in the firm with more ease than they would in matters concerning strategic decisions. In the day to day running of a restaurant, for example, scheduling a given number of employees to match the customer inflow in periods of increased activity such as lunch hours is vital to the provision of exemplary service (Piasecki 2009). Choosing the right suppliers of food stuffs is another factor that will significantly affect restaurant operations on a daily basis. The application of inventory management tools in operations management The process of operations management is mainly concerned with the management of all the processes that are used in the distribution of goods and services (Rainbird 2004). Some of these processes include product development or creation, product distribution, the procurement of raw materials, quality control, inventory control, logistics, storage, and the assessment of the effectiveness of various processes (Pinheiro de Lima, Gouvea, and Jan Angelis 2008). The different operations management processes used by organisations are usually determined by the products that the company manufactures. For example, companies that deal in wholesale processes tend to have different operations management processes from those that deal in retail functions (Johnston and Staughton 2009). Inventory Management Tools When figures are accurately maintained, it is easier for a company’s sales personnel to be provided with information regarding what products are available, or even ready for distribution at any time. Apart from determining the movement of different inventories, inventory management is also important because it enables the preparation of accurate records that could then be used to learn about any taxes that are required (Piasecki 2009). In the absence of precise information about unit volumes in every stage of operations, a corporation may not be able to determine the precise tax amounts that are owed. This could result in a serious problem because taxes would inevitably be underpaid; resulting in stiff penalties if the local authorities were to undertake an independent audit. Organisations all over the world use different inventory tools in the evaluation of their products. These tools can be divided into four broad categories- software, hardware, audit systems, and theoretical models of management (Muller 2011). It is necessary for all these four different types of tools to be properly integrated in order for them to work in harmony. In any modern, large sized organisation, inventory control software serves as the backbone of all inventory processes. Inventory control software is responsible for functions that support the examination of quantity, product location, orders of re-supply, and inventory transactions (Johnston and Staughton 2009). Moreover, there are small or average-sized organisations that use elements such as spreadsheets as their principal tools of inventory management. These spreadsheets may constitute of databases that have user interface properties ensconced in a given menu. Another type of tool used in inventory management is hardware. Hardware could include desktops, servers, RF devices, bar code label printers, dumb terminals, RFID tags, and Point of Sale implements (Adeyemi and Salami 2010). It is important for a company to select the best tools of inventory that will balance infrastructure versus labour. Theoretical models of inventory management could be used to deal with dependent or independent demand. These models can successfully establish a framework that is vital to the realization of inventory success. Lastly, audit systems are crucial in the determination of a company’s success rate. Small as well as large business enterprises require regular audit systems to make sure that their performance is in line with corporate objectives. These four tools of inventory management are vital in the realisation of corporate success. The ABC Inventory Management System The ABC inventory system uses a method that is identical to Pareto analysis. In this system, ‘A’ stands for outstanding importance, ‘B’ stands for average importance, while ‘C’ stands for relative unimportance (Heizer and Render 2006).This classification, though, does not mean that the factors in the different categories are given varying degrees of attention. Also referred to as the ‘80/20’ rule, the ABC principle is usually applied as rule-of-thumb in inventory management. This means that 80% of the currency value, in terms of an inventory’s consumption, remains in approximately 20% of the products (Muller 2011). This rule is often used when inventory managers wish to invest in where they are likely to accrue the most benefits in regards to stock availability as well as cost reduction. Material Requirement Planning (MRP) Material requirement planning, or (MRP), basically refers to an information system that is computer-based and formed to deal with matters concerning the scheduling and ordering of inventories of raw materials, sub-assemblies, or component parts (Piasecki 2009). A manufacturing plan for a given number of products is altered to be a list of requirements that works backwards using lead times in order to establish the quantity of products to order, and when to make the order. This means that any requirements for finished products will generate the need for low-level elements which are broken down according to fabrication, planning periods, and assemblage concerns. MRP typically starts with a time schedule for the end-items that is then transformed into a list for requirements for component parts, sub-assemblies, and raw elements. The MRP inventory system is basically created to deal with what is required, when it is required, and the quantity that is required. The principal MRP inputs comprise of a master schedule that tells the amount of finished product that is needed, a bill of materials that tells the components of the finished item, and the inventory record file which establishes the net requirements needed for every planning horizon period (Van Mieghem 2008). Fig. 1 - MRP Elements (Piasecki 2009) Economic Order Quantity Economic order quantity, or EOQ, is a significant inventory implement that is often used by distributors. This system makes it possible for distributors to oversee inventory purchasing, as well as stock levels, in accordance with the required levels of service for particular products. According to Anupindi, Chopra, Deshmukh, Van Mieghem, and Zemel (2006), higher levels of service will necessitate greater inventory carrying costs, as well as greater stock levels. On the other hand, lower levels of service are linked with reduced customer satisfaction. EOQ extends the capacity to systematically determine the best service levels to distributors, while also providing the option of capitalizing on inventory levels. EOQ is a central part of inventory control, and can positively influence different areas of business such as growth potential, cash flow, and profitability. The EOQ equation is represented as: In this equation, ‘S’ refers to set-up, ‘D’ refers to demand, and ‘H’ refers to the holding cost. EOQs that are determined by ERP software could be based on more sophisticated equations that take into consideration the usage rate of the product, the safety stocks, lead time of the vendor, contributors to carrying costs, and the quantity represented by the order (Van Mieghem 2008). Conclusion The best way to decide on the preferred method of inventory management is to consider the main kind of inventory data kept by the company, and the kind of experience that the workers in the company have. The company also has to consider the aspect of cost. A small or average sized independent company, for instance, may only require a particular kind of filing system that deals with the orderly maintenance of the company’s invoices and packing slips, so as to be able to keep track of outgoing and incoming stock. The proprietor of such an organization could also make use of a small database. This will lessen the possibility of having to deal with an excess of paperwork as all the company’s data will be stored by electronic means. Larger companies, on the other hand, may require a more advanced system of inventory management. Big companies may also have to invest in the training of employees in matters concerning the management of the company’s inventory system of management. It serves no purpose for an organization to have a comprehensive database that is filled with corporate information if the workers are not well-versed on the use of this software. Workers can be trained on how to use inventory management systems through company-sponsored seminars, training programs, or even training videos that can easily be procured. References Adeyemi, S.L. & Salami, A.O. (2010) ‘Inventory management: a tool of optimising resources in a manufacturing industry- a case of Coca-Cola bottling company Ilorin plant’, J. Soc Sci., vol. 23, no. 2, pp. 135-142. Anupindi, R., Chopra, S., Deshmukh, S.D., Van Mieghem, J.A. & Zemel, E. (2006) Managing business process flows: principles of operations management, Pearson Prentice Hall, Upper Saddle River. Bettley, A., Mayle, D. & Tantoush, T. (2005) Operations management, a strategic approach, SAGE, California. Brown, S., Lamming, R. & Bessant, J. (2004) Strategic operations management, Routledge, London. Gong, Y. (2013) Global operations strategy: fundamentals and practice, Springer Heidelberg, New York. Gray, N. (2012) ‘Scottish bakery gunning for international expansion’, Bakery and snacks.com. Retrieved from http://www.bakeryandsnacks.com/Markets/Scottish-bakery-gunning-for-international-expansion Heizer, J. & Render, B. (2006) Operations management, Prentice Hall, New Jersey. Johnston, R. & Staughton, R. (2009) ‘Establishing and developing strategic relationships - the role for operations managers’, International Journal of Operations and Production Management, vol.29, no.6, pp. 564-590. Maine Made Furniture Company. (2014) Retrieved from http://memfc.com/htm/about.htm Muller, M. (2011) Essentials of inventory management, AMACOM, New York. Piasecki, D. (2009) Inventory management explained: a focus on forecasting, lot sizing, safety stock, and ordering systems, Ops Publishing, New York. Pinheiro de Lima, E., Gouvea, S.E. & Jan Angelis, J. (2008) ‘The strategic management of operations system performance’, International Journal of Business Performance Management, vol. 10, no. 1, pp. 108-132 Rainbird, M. (2004) ‘A framework for operations management: the value chain’, International Journal of Operations and Production Management, vol. 34, no. ¾, pp. 337–345. Raturi, A. & Evans, J.R. (2005) Principles of operations management, Thomson Southwestern, Mason. Van Mieghem, J.A. (2008) Operations strategy: principles and practice, Dynamic Ideas, Belmont. Read More