Operations Management in Rothmans International - Case Study Example

Operations Management Introduction: It has been said that the traditional approaches to stock control and quality management are no longer applicable to a modern world class organisation. Over the few last decades many changes have been seen in the business environment mainly due to globalization and its impacts upon traditional trade activities and business management approaches. The impacts of globalization have led the business empires to compete first at international and then at global level. The changes in the business environments have led them to bring changes in their internal environments, in their, processes, operations, management approaches, organizational designs etc. Because in order to exist in today’s global trading environment it is extremely essential to be very adaptable to the upcoming and unexpected changes.1 In the light of the given statement, the aim of this essay is to discuss the changes that have come over the last 50 years and to suggest implications for the modern global organizations. This essay focuses on each and every essential part of the available literature in Operations management in order to understand the basic concepts of operational environment, its history and changes that have come in it over the last fifty years. In the end detailed suggestions have been proposed in order to effectively incorporate the operational management processes. Operational Environment --- Definitions and concepts: An operational environment consists of all those activities that are necessary to convert inputs into goods and services. Normally these activities are associated with the production process. Main elements of an operational environment are people, facilities and process technology. People include all those employees and managers who are directly or indirectly involved in the production process. Facilities include land, buildings, equipment and all those major physical assets that directly affect an organization’s ability to deliver goods and services. Process technology is the technology used in the transformation of inputs into goods and services. In order to control and process the operations environment efficiently operations management is used. In early days the term “production operations management was used but with the passage of time it was converted to “operations management. 2 Operations management is a process of managing (planning, scheduling and controlling) the production processes involved in the conversion of inputs to outputs (products and services). The basic purpose of operations management is to make production efficient with low cost. Depending upon the basic two types of organizations; manufacturing concern and service industry, the operations management involves different types of workforce. 3 In manufacturing industry the operations management function includes plant managers and all other managers who work in factories like production managers, inventory control managers, quality assurance managers and line supervisors. In service industry the same function will be conducted by other types of managers e.g. in a hotel this function will be performed by hotel manager and all other managers who work in a hotel like housekeeping managers, food and beverage managers and conventional managers. The functions of production, inventory control, quality assurance and line supervision is also done in service industry, the difference only lies in the use of terminology and specification of job responsibility. e.g. in a hotel a food and beverage manager will look after both the production process and quality assurance of food and beverage in a hotel while in manufacturing concern the quality assurance manager will look after only one activity which is to manage and control quality. It is important to note that service industry is a very new industry in comparison to the manufacturing concern. Therefore the main operation management tools were developed by the manufacturing industry which has been successfully incorporated by the service industry as well. These tools include Total Quality Management, Continuous Improvement, Business Process Reengineering and Time-based Competition. Also if the structure of company is corporate then this function will also be carried out by the manufacturing/ operations vice presidents.4 Changes Came In Operational Environment Of A Firm Over The Last 50 Years: Over the last fifty years many changes have been seen in the operational environment and the interests of owners in its management. These changes have come due to many realizations. Previously the firms focus was on earning profit which has now diverted towards customer because they have realised that the customer directly affects the image building, the level of sales, the goodwill strength and long life of a firm. Previously the firms’ focus was on individual productivity which has now changed towards team effort, therefore now emphasis is greatly made upon interdependence of departments in an organization and open flow of knowledge and information. Previously the organizations did not focus upon prioritising the various corporate objectives but now they do so systemising the objectives in a step by step procedure in order to achieve the desired goal. The companies never gave any respect to the suppliers and used to tolerate them as a necessary evil but now they are given due importance through the use of supply chain management tools and techniques. Previously a vertical hierarchy was dominated in firms where there was no or very less communication between managers and front line employees which has now diverted towards the belief that a cooperative, diverse and skilled workforce is essential part of any firm’s progress and efficiency. All these changes have ultimately affected the operational environment of a firm because all these elements customers, internal departments, goals and objectives, organizational design and employees are all important elements of an operational environment. All of this tremendous change has come because now the customers are more informed and knowledgeable then ever before. They have more resources and access to frequent, right, more precise knowledge then ever before.5 This change has been termed as globalization. The main factors behind the globalisation are described below: 1. Technological Change: In the last fifty years the field of technology has changed abruptly. This is the only field which has the highest uncertainty and everyday we see new products and innovations in it. The technological changes have provided machinery which is very easy to use and produce very accurate and efficient results. The equipments used in the production are more advanced then ever before which in less time produce the desired results. These developments are related to every aspect of technology ranging from the machines used in the basic production process to the electronic security checking system at its entry gate. Previously the firms used to perform every activity manually but now they are more electronic driven owing to the advancements in technology in the last many years. Technology improvements have now allowed firms to perform operations more quickly and effectively then before. e.g. now firms send huge amounts of letters and office orders etc through e-mails and faxes. They conduct virtual meetings through voice and video devices. Internet has made fastest and convenient way to share and access knowledge and information. Even nowadays the firms use electronic system to take attendance of employees as soon as they enter the gate. All this has increased the precision and accuracy of operations which ultimately enhances the efficiency of overall all production process. 2. Accumulation Of Capital: During the last fifty years people in business environment have accumulated a lot of money, not to mention the Bill Gates of Microsoft. Now the rich people names are included in the Guinness book of world records as the richest people of the world. Previously money used to be one of the main issues that used to hinder many innovative people to make breakthroughs into the world of business but now this accumulation of capital have allowed the entry of many rich, intelligent and innovative entrepreneurs. This has resulted into the development of a variety of new products and has also increased the productivity in production and marketing processes. Money can buy anything from any part of the world. This money has allowed people to move to different parts of the world to explore and do new ventures. This has in turn resulted into lower cost production and diverse workforce. Many manufacturing concerns now have moved their production units to those countries of the world where labour is hardworking, creative but cheap like China and Bangladesh. This movement of production units ha paved the way for global communication and trade relationships. 3. Human Resources: Another important factor in the development of globalization has been a well qualified, skilled and efficient workforce. Only this type of workforce allows quick implementation of new technologies. Because for the everyday advancements in technological products a well informed and educated labour and management is required this has the adaptability and flexibility for the acceptance and use of new daily advancements in technology. These advancements are normally in those products and services which are directly related to the human resource therefore, many companies now give trainings on both national and international levels to its employees in order to make them well skilled. This directly and indirectly increase the efficiency of production through efficient management. 4. Liberalization Of Trade: In last decades many trade agreements have been made which has liberalised the trading all around the world by diminishing various trade barriers. These barriers were mostly associated with the import and export procedures which used to resist timely delivery, reduction in shipment costs, cross border taxes etc. these trade liberating efforts have make the countries all around the world very dependent upon each other. Every organization’s premier goal includes cost reduction. Now the countries have developed such agreements like the North American Free Trade Agreement and the General Agreement on Tariffs and Trade with one another which have mutual benefits for them in the form cost reductions, quick delivery etc which has in turn increased the efficiency of production. 6 Operations Management: Because of all the changes in operational environment changes have come into management practices to deal with them. It is important to note that Japan was the first to ensure effective operational activities in order to enhance production efficiency. After it USA and other countries started to use the Japan’s concept of “continuous improvement”7 in the production process. The concept of continuous improvement is basically the underlying idea behind operational management i.e. to improve all factors relating to the transformational process on a continuous basis. This involves teamwork. As a result the function of operations management gained significance. Because only a well managed operational environment can increase the efficiency of production and for that a function of operations management became the necessity.8 A brief history of the changes in operations management practices is given below: Till the end of 18th century agriculture industry dominated the trade. Then with the advent of steam engine industrial revolution came in and the concept of manufacturing factories erupted. But at that time manufacturing was considered and treated as an art not as a science. This conception ended when in the beginning of twentieth century Fredrick W. Taylor gave his scientific management approach. Along with that Henry Ford brought up the concept of moving assembly line and through these two breakthroughs the business management began to focus upon management techniques in the production processes. In the late 1950s and 1960s a lot was written about production management. With the advent of service industry in US the term production management converted into production operations management which has now turned into only operations management only because service industry has developed itself into a separate unique industry. Now the focus of operations management remains only upon those elements which are the integral part of an operational environment.9 Implications For Modern Global Organizations: It has been seen that every organization develops strategies to deal with threats and opportunities only. The researchers and scholars now suggest that the organizations should also focus upon three main issues related to the operations in any organization. These are: 1. How to design a production system to produce products and services according to the level of demand? 2. How to plan for using this system effectively? 3. How to manage key elements of the operations? If these three issues are considered in focus while developing an operations strategy then many advantages can be gained. Each of these implications are described in detail below: 1. Designing A Production System: Production System design provides the basic resource base required throughout the product development process. The designing of production system begins from the stage of product development. Product development involves specifying the attributes of a product, assessing customer needs and demands along with designing the product. 10 Quality Functional Deployment (QFD) is suggested to be a method that can be used to improve product design by focussing upon customer needs. This method is a set of planning and communication routines that focus only upon customer needs and wants in order to indicate design limitations that can affect these needs and wants. A process design should also be developed. Process design explains how the product will be made by focusing on two components: technical and business. Technical component selects equipments and sequences for the production while business or economy scale component focuses on amount of tools and equipments to be used in order to reduce costs. It determines: 1. Whether the demand is so large to justify mass production 2. Whether the demand has a variety so that flexible production system can be used. 3. Is the demand very small so that dedicated production facility can be avoided? The facility design should also be made which specifies capacity, location and layout for the facility. Capacity means the capability of an organization to meet the demand. Along with this information systems should also be decided upon which will be used to monitor and control the performance. Product development involves all important functions of marketing, finance and operations, therefore Job design should also be developed in order to define the responsibilities of the labour and management involved. 2. Planning The System: After designing the basic layout of system, a proper plan can be developed in order to realise what management expects for using the existing resource base. The management can change the capacity level to meet the changing demands or can even completely change the whole layout in order to increase efficiency. This planning is done by the production planners who make decisions according to the time horizon. The changes in the system design are based on the availability of time. The longer the time is the major the changes could be brought in. 3. Managing The System: The most important and practical step is to manage the system. It involves three perspectives; managing people (employees), managing materials and managing quality. The employees are encouraged to participate and increase the efficiency of their organization through the use of techniques like motivation, leadership and training. Material management includes procurement, handling, storage, control and distribution of materials. The aim of material management is to reduce the cost of purchasing the material. To control the quality of production process the quality management programs should be designed in order to ensure high quality of the product throughout the production process.11 Example Of A UK Company Which Brought Changes In Its Operations Over Time: The history of Rothmans UK Holdings Ltd shows us a great pattern in the conditional change the management brought into the operations of its production processes as and when required. Today it does not have a greater share in the tobacco market but it achieved continuous growth in the early 1990s despite of limitations like high taxes, serious health concerns linked with tobacco use and strict limit of advertising its products. Rothmans International was found by Louis Rothman in 1972. Rothman initially came into this business when he used to make handmade cigarettes at night and sell in day to reporters and printers of the area. He made good reputation among riches by supplying them his handmade cigarettes __ a niche market approach. In 1980 he opened his own shop and in 1900 opened two more. His business was a success in UK. He then changed his strategy and in 1902 targeted the market outside UK in South Africa, Netherlands, India and Australia __ global approach to extend business through export. In 1906 he created Menthol Cigarettes __ a product differentiation strategy. In 1905 he was selling tobacco products to the British Royal family and in 1910 succeeded to sell to the royal family of Spain. During World War I , he shifted to mass production because the demand for expensive high quality cigarettes dropped and for cheap Virginia Cigarettes rose. He sold them duty free to British troops and also reorganized his factory to adopt new methods of Virginia cigarettes ___ Quality management approach. After the World war he focused on advertising and in 1926 opened a subsidiary in India. After his death in 1926 his son continued to follow his foot prints and in 1929 the company was converted to a public company Rothmans Limited. In 1930s the company continued to develop new methods for the filtration of cigarettes in order to improve quality and differentiate products. Till 1972 many branches of the firm were present especially in the third world. In 1972 in the response of takeovers in tobacco industry Rothmans International was formed. It diversified it product range by offering many other accessories like toiletries, men’s wears etc. in 1970s due to increase in health problems due to tobacco, Rothman’s 25% share was sold to Philis Morris, famous for its Marlboro cigarettes, in order to sustain sails. This process of opening new subsidiaries, selling shares to rivals and changing it parent company’s name kept on. 12 This brief history of the Rothmans UK Holdings Limited, ranked among top four tobacco companies shows the decisional changes at right time in the production/ operational processes to increase and sustain sales. If this company’s owners did not take right steps at right time then it could have been collapsed many years ago. This example did not only show a systematic expansion of the firm but also its conditional decision making in the face of great challenges. Bibliography 1. Anupindi, Ravi, Sunil Chopra, Sudhakar D. Deshmukh, Jan A. Van Mieghem, and Eitan Zemel (2006). Managing Business Process Flows: Principles of Operations Management. Upper Saddle River, NJ: Pearson Prentice Hall. 2. Davis, Mark M. (1999). Nicholas J. Aquilano, and Richard B. Chase. Fundamentals of Operations Management. 3rd ed. Boston: Irwin McGraw-Hill 3. De Jager, B., et al. (2004). Enabling Continuous Improvement: A Case Study of Implementation. Journal of Manufacturing Technology Management, 15, no. 4: 315–324. 4. Finch, Byron (2006). Operations Now. Boston: McGraw-Hill Irwin 5. Joseph E. Stiglitz (2006). Making Globalization Work. W.W. Norton. 6. Lewis, Michael A. (2003). "Analysing Organisational Competence: Implications for the Management of Operations," International Journal of Operations and Production Management, Vol. 23, No. 7, 731–756. 7. Meller, Peter (1993). Rothmans--Leader of the Budget Pack? Marketing, pp. 22-23. 8. Nicholas, John M. (1998) Competitive Manufacturing Management. Boston: Irwin/McGraw-Hill. 9. Raturi, Amitabh, and James R. Evans (2005). Principles of Operations Management. Mason, OH: Thomson Southwestern. 10. Vonderembse M. A., and G. P. White (1996). Operations Management: Concepts, Methods, Strategies. St. Paul, MN: West Publishing. 11. Wesley Cragg (2005). Ethics Codes, Corporations and the Challenge of Globaliation. Edward Elgar Publishing. 12. Wheelwright, Steven C., and Kim B. Clark (1995). Leading Product Development. New York: Free Press. Read More