Operations Management Performance Objectives - Literature review Example

The new business environment of worldwide competition and new technological advancements have changed the recipe for achieving business success. The basis of competition is different from the last decades, as it is shifted from the price based competitions towards the competing on other corresponding dynamics, such as responsiveness towards customer requirements, flexibility, innovation in products or services, and quality (Kanji, 2002). In such environment, the secret of success lies in the “performance” of the business, where the performance is determined through the operations of the company that are the ways of converting the company’s strategies and objectives in to the reality. The operations in an organization is a function of “…getting things done…”, where the products or services are produced for the consumers (Stevenson, 2005, p. 21). Most of the practitioners regard the operations management as the routine operational activities that are involved in tactical concerns for a shorter time period. While the business firms are striving for finding a long term solution for their success in the future. So, a business strategy is considered to be a set of purposes or objectives that can direct the actions of the company for a long term growth and success. It is argued that it is a true concern to be worried for a long term plan and strategies, but these strategies can only be converted into a significant reality, if these are performed at operational basis (Stevenson, 2005). In a more practical sense, the operations function is strategically significant, as most of the organizational actions are carried out through these routine activities that realize the strategies into practice. These numerous routine activities create the firm’s strategic route by seeing it in total. According to (Prajogo & McDermott, 2008), the business strategy and the operations, collectively determines the company’s capability to attain long term performance. In line with this argument, Stevenson (2005) stated that “…organizational success is only likely to result if short-term operations activities are consistent with long-term strategic intentions and make a contribution to competitive advantage…” (Stevenson, 2005, p. 21). As the success of a business depends upon the operations function of an organization, so it is important to measure the operational performance to get more practical insights of the business performance issues. This paper is aimed to produce a comprehensive literature review on operations management performance objectives and demonstrating these objectives and their measures by using a practical approach of using real-life examples. These two examples are Toyota Motor Company (manufacturing) and DHL Express (service). For the operational performance evaluation, there is need to set the criteria. According to Slack, et al. (2004), the criteria for the evaluation of operational performance can be explained inn terms of five operational performance objectives, such as quality (degree to which the production is right according to the requirements and free of faults), speed (responding quick to customer requirements and shortening the lead times), cost (producing at lowest possible cost), flexibility (flexible in changing operations in four concerns; production volume, production time, innovative product or services, and the mix of product/services), and dependability (delivering the product as promised with customer) (Slack, et al., 2004). Organizations can choose one or more objectives to compete on these bases. The literature reviewed a number of key measures for evaluating operational performance. With regard to the manufacturing sector, Davidson (2013) has identified a number of key performance measures, where these measures are linked with each of the operational performance objectives. Since the objective of ‘speed’ and ‘dependability’, there are three measures that analyze the company’s responsiveness towards the customer demands, as well as the customer satisfaction, such as on time delivery as promised, lead time to manufacture, and time to make exchanges. These metrics are used to measure the speed of the product delivery, manufacturing, and substituting the plants to make a different product, and also the reliable delivery of the product (Davidson, 2013). The measures for the “quality” objective of a manufacturing company’s operations include; yield (which is the percentage of goods produced accurately and right according to requirement, without any revision), Returns (which is the number of times the customer rejected the product or complaint about the product being beyond requirements), and Vendors’ quality Incoming (which is the percentage of quality of raw materials provided by vendors to manufacture the product). As these three metrics affect the product quality and customer experience as well (Davidson, 2013). The flexibility measures that affect the product’s innovation and customization extent, include; New product development rate (the rate with which the company develops and launch innovative products in the market, it uses ramp-up time as well), and re-engineering order lead time (which is the measure of how many times the existing products are re-engineered or designs are renewed in documents as well as manufacturing volume) (Davidson, 2013). The measures used to evaluate that either the company has achieved lower cost or not, include; total production cost per unit, production cost in percentage of revenues, productivity per employee, net operating profit, contribution margin per unit produced, cash to cash lead time, and Earnings Before Interest and Taxes (EBIT). With regard to the automotive industry, Felice, et al. (2013) have argued for adding other metrics related to manufacturing specifically in the automotive industry, where the key performance indicators are to be defined for the objectives of employee involvement, facility control, inventory management, reduction in maintenance, and increasing safety (Felice, et al., 2013). While Amrina and Yusof (2011) further presented a review, where they summarized operational performance measures for automotive industry, in excess of the five objectives, given by (Slack, et al., 2004). They suggested that there are some other objectives to be determined by evaluating the operational performance for an automotive company, such as efficiency, innovation, labor, and customer satisfaction (Amrina & Yusof, 2011). Moreover, Jayal, et al., (2010) have argued that the automotive industry is the most important one in the manufacturing sector, where the contemporary issue is the “sustainable manufacturing” that can be measured by the environmental performance encompassing the products to be eco-friendly, socially beneficial, and economically advantageous, as suggested by (Jovane, et al., 2008). While the main performance issues identified in the automotive industry are lack of management commitment, leadership ineffectiveness, and lack of customer focus, employee empowerment, and open culture, which are necessary for flexible operations and innovation is the main competitive factor for the manufacturing sector (Samson & Terziovski, 2006; CIMA, 2010). For service sector, Wadongo, et al. (2010) have suggested some key performance measures to evaluate the operational performance of the service sector, where they highlighted the importance of performance objectives of quality of service, level of service, competitiveness, flexibility, productivity, cost, responsiveness, and call handling (Wadongo, et al., 2010). While Rumburg and Zbikowski (2009) have discussed the metrics associated with common service performance. These include the cost per inbound contact, cost per minute of handling time, and first level resolution rate, which measures that the company has achieved the low cost or not. In service, another important objective is to achieve the highest service level, which is measured through average speed of answer, call abandonment rate, and percentage answered rate. For quality measurement, it is suggested that first contact resolution rate, customer satisfaction, and call quality are used to measure the quality of service (Rumburg & Zbikowski, 2009). However, these measures are relevant to the service desk business. It is important to evaluate an industry specific measures. With regard to the logistics services industry, the literature has provided with the operational performance measures for the logistics service providers. According to (Krauth, et al., 2005), there are four perspectives in order to develop a key performance measures for the logistics service, which include the management perspective, employee perspective, customer perspectives, and society perspective (Krauth, et al., 2005). It can be argued here that the logistics service companies can develop operational performance metrics by considering all of its stakeholders. From a management perspective, there are four objectives to be achieved that are efficiency, effectiveness, satisfaction, and IT & Innovation, where a number of metrics are to be measured for these. But these can be discussed in terms of performance objectives provided by (Slack, et al., 2004). To achieve effectiveness and quality objective, the performance measures are Km per day, Turnover per km, Benefit per delivery, Number of deliveries, and Perfect order fulfilment. For achieving cost and efficiency objective, the measures are total distribution cost, services cost, overhead costs, deliver cost, order management, and a number of trucks used. Flexibility measures include information system employment, upgraded IT, and new service offerings per year. For customer satisfaction (highly important objective of the service operations) are determined by the speed and dependability objectives by measuring the response time, product safety, transportation prices, and insurance service (Krauth, et al., 2005). However, the main performance issues identified for the logistics service providers are the customer satisfaction and loyalty, quality and differentiation of services, customer requirements to be met, on-time delivery, and market share due to high competition (Stank, et al., 2003). The above literature has identified key performance indicators with respect to the five operational performance objectives for both manufacturing and service sectors. Though, one can suggest that surpassing all of these five objectives can lead to the operational success, such as by achieving low cost, high quality, more flexibility, and fast and reliable delivery, the success is for sure. However, it is important to argue here that it is almost impossible for an organization to achieve all of these objectives. As Stevenson, (2005) has provided a kind of solution in its statement that “…it is important to note that the success of any particular business strategy depends not only on the ability of operations to achieve excellence in the appropriate performance objectives, but crucially on customers valuing the chosen competitive factors on which the business strategy is based…” (Stevenson, 2005, p. 25). It can be explained in a way that there is always a need to choose appropriate performance objectives in accordance with the areas where the firm has to compete. Thus, the success lies in choosing the performance objectives according to the customers’ requirements and demands on which basis the organization should compete and develop corporate strategy, for instance, if the customers demand is to have low price and on-time delivery then the cost and speed objective have to be fulfilled by trading off other objectives. The concept of trading off is argued by (Greasley, 2008), who further gave the concept of focused approach, where the organizations need to focus on some of the objectives on the basis of customer focus, company’s corporate startegy (to ensure the alignment with corporate objectives as suggested by (Prajogo & McDermott, 2008), and the specific industry’s issues. But some of the scholars have argued that some organizations have to compete in multiple objectives (Stevenson, 2005). But (Slack & Lewis, 2002) amd (Hayes, et al., 2005) argues that there can be an ideal sequence in which the organizations can achieve the operational sequence, where the sequence of focusing on objectives is as “quality, dependability, flexibility, and then cost. It is according to the sandcone model given by (Ferdows & De Meyer, 1990), but it again depends on the competitive and industry factors. So, the focused approach for the performance objectives is preferred, where there must be alignment of these performance objectives with the corporate strategy of the organization. This focused approach can be illustrated for the manufacturing company, named Toysota Motors Company (Automotive industry), where the main issues are lack of management commitment, leadership ineffectiveness, lack of customer focus, need for employee empowerment, and open culture. For TMC, the operational performance objectives should be selected on the basis of current issues, where two objectives can address these issues that are flexibility and quality. The TMC has been using lean manufacturing for the cost control, which have achieved the cost objective, while the use of Just-In-Time manufacturing approach has ensured the dependability and speed. The industry trends show that the main driver for growth and competing in this business environment is innovation, so TMC should excel in terms of flexibility and quality objectives. The flexibility will allow the TMC to create an open culture with more empowerment to employees and this way will foster innovation. Thus, flexibility will provide the TMC an ability to innovate and develop flexible operations. The quality objective will ensure that TMC is focusing on the customer needs and requirements in manufacturing the automobile. The corporate strategy of the TMC entails the achievement of the customer satisfaction, quality and safety, so these performance objectives are in line with the corporate strategy of TMC. This approach can also be illustrated for the company DHL Express (logistics services), where in service sectors, the main issues are customer satisfaction and loyalty, quality and differentiation of services, customer requirements to be met, on-time delivery, and market share due to high competition based on prices. Here, DHL Express has to excel in terms of cost objective (to gain more market share and compete), quality objective (to meet the customer demands, achieve customer satisfaction and loyalty), dependability (to deliver on-time), flexibility (to provide differentiated services), and speed (to gain more market share). In case of DHL Express, the sandcone approach can be suggested, as there is a need to focus on all objectives to achieve operational excellence. According to this approach, the DHL Express should focus on the quality first, and then quality, dependability, and flexibility should be focused. However, the corporate strategy of DHL is the customer satisfaction that is achieved by quality objective, so this approach is in line with the corporate strategy of the DHL. In this paper, three main issues are discussed; key measures for the operations performance objectives used for measuring operations in the relevant industries (logistics service industry and automotive industry), critical review of literature on operations performance management in both manufacturing and service operations, and illustrations of the examples chosen. References Amrina, E. & Yusof, S. M., 2011. Key Performance Indicators for Sustainable Manufacturing Evaluation in Automotive Companies. IEEE, 1(1), pp. 1093-1096. CIMA, 2010. The global manufacturing sector: current issues, London: World Congress of Accountants. Davidson, M., 2013. 28 Manufacturing Metrics that Actually Matter (The Ones We Rely On), Online: LNS Research. Felice, F. D., Petrillo, A. & Monfreda, S., 2013. Improving Operations Performance with World Class Manufacturing Technique: A Case in Automotive Industry. Industrial Engineering and Management, 1(1), pp. 1-10. Ferdows, K. & De Meyer, A., 1990. Lasting Improvements in Manufacturing Performance. The Journal of Operations Management, 1(1), p. 168–184. Greasley, A., 2008. Operations Management. 1st ed. London: Sage Publications. Hayes, R., Pisano, G., Upton, D. & Wheelwright, S., 2005. Operations, Strategy and Technology: Pursuing the Competitive Edge. 1st ed. New York: John Wiley & Sons. Jayal, A. D., Badurdeen, F., Dillon, O. & Jawahir, I. S., 2010. Sustainable manufacturing: modeling and optimization challenges at the product, process and system levels. CIRP Journal of Manufacturing Science and Technology, 2(3), pp. 144-152. Jovane, F. et al., 2008. The incoming global technological and industrial revolution towards competitive sustainable manufacturing. CIRP Annals- Manufacturing Technology, 57(2), pp. 641-659. Kanji, G., 2002. Performance Measurement System. Total Quality Management, 13(5), p. 715. Krauth, E., Moonen, H., Popova, V. & Schut, M., 2005. Performance Indicators in Logistics Services Provision and Warehouse Management- A Literature Review and Framework. ICEIS - Artificial Intelligence and Decision Support Systems, 1(1), pp. 239-247. Prajogo, D. I. & McDermott, C. M., 2008. The relationships between operations strategies and operations activities in service context. International Journal of Service Industry Management, 19(4), pp. 506 - 520. Rumburg, J. & Zbikowski, E., 2009. The Seven Most Important Performance Indicators for the service desk, online: MetricNet. Samson, D. & Terziovski, M., 2006. The relationship between total quality management practices and operational performance. Journal of Operations Management, 17(4), p. 393–409. Slack, N., Chambers, S. & R., J., 2004. Operations Management. 4th ed. Harlow: Pearson Education. Slack, N. & Lewis, M., 2002. Operations Strategy. 1st ed. Harlow: Pearson Education. Stank, T. P., Goldsby, T. J., Vickery, S. K. & Savitskie, K., 2003. Logistics Service Performance: Estimating its influence on mmarket share. Journal of Business Logistics, 24 (1), pp. 27-55. Stevenson, W. J., 2005. Operations Management. 8th ed. New York: The McGraw-Hill Companies, Inc.. Wadongo, B., Odhuno, A., Kambona, O. & Othuon, L., 2010. Key performance indicatorsintheKenyanhospitalityindustry:a managerial perspective. Benchmarking: An International Journal, 17 (6), pp. 1463-5771. Read More