Operation Management - Assignment Example

Operation Management xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecturer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Question 1 Operation management is defined as the use of physical resources to convert inputs into outputs in order to give the customer desired utilities of place, form, possession, or a combination while meeting the organization objective of efficiency, adaptability and effectiveness. Basically, it is the various ways an organization produces services and goods. An operation is a conversion process of inputs which are the resources into outputs, that is, goods and services (Johnston et al 1997). Concept of operation in an organization is defined as managerial and human processes involved in the organization, employed technology and the mission that is created to serve a given organization. It can be categorized as manufacturing and services operations. Manufacturing operations results to tangible outputs while services yields intangible output. Concept of operation is important and relevant in any business. This is because operation concept is effective and therefore, gives the potential to increase and improve both customer services and efficiency simultaneously. It may to some extent be describe as the heart of business, as it is at the centre of various changes that affect the business, that is, changes in consumer preferences, supply networks, changes in what is done at work, where and how to work, and so on (Slack et al 2010). Not only in production, is the knowledge of concept of operation applied but also in the services delivered to the customers. In production, it mainly involves the conversion of the available inputs into outputs that are desired by the customers. Therefore, it is an important aspect in the business or any organization. Operation concept assists a business in organizing, planning, controlling and directing its production activities. This will increase the performance of a business in efficiency, customer satisfaction and effectiveness. Effectiveness involves the optimal fulfillment of the various objectives set by a business, in consumer satisfaction; the customers’ satisfaction is met when the output is the right quality, right quantity, and right price and delivered at the place and time. Better management concepts will then improve efficiency at the operation management leading to broader concept and ensuring that the right things are done (Hill 2005). The optimal utilization of the resources is also improved by the applied knowledge in operation concept in production. Efficiency in production management, will then results to customers’ satisfaction, increased security for investors, adequate wages for employees and confidence will built with the suppliers. Delivering services to the customers is a key aim of operations management. A business should give something to a specification that will satisfy the consumer in terms of timing and cost. Basically the operation management will assist in a business in the principal objectives, that is, the primary considerations which include treatment of acceptable and requested specifications. The concept clearly indicates that poor management at the production level and services to the customer by a business will definitely lead to failure of objectives set by the business. The concept can be applied in a situation where a business is carrying out its services to its customers. As the operations are concerned with organizing, controlling, and planning the activities of the business which will eventually affect the customers’ response, the customers’ services are then major objectives of an operation system. Satisfactory services to the customers will eventually lead to a business achieving its set objectives in its services deliveries. Apart from the customers’ services, utilization of available resources to achieve the desired outputs is a major issue in operation management. This is also another area that concept of operation can be applied in a business when it is carrying out its plans (Harrison & van Hoek 2000). Management tasks are important in managing the situation given above. Effective management is essential as the managers need to work efficiently to maintain the business in satisfying the customers and well utilization of available resources. Management involves organizing, planning and controlling the flow of the business. These activities largely affect the output of the business which will then determine the response of the customers. The management has to have effective systems in order for the business to thrive. This includes organizing training and motivation of employees, who will then be motivated and therefore, work efficiently. The operation management should also plan and set achievable goals for the business that will guide the business in its activities and eventually accomplishing its objectives. Question 2(B) Traditionally, competition among organization was considered a measure of power and superiority. Moreover, the competition could not be described as healthy as such. However, the competition among the organizations has been to the advantage of the customers. It is therefore, necessary for an organization to be able to attract and maintain its customers, beating its competitors in carrying out its activities. Operations of the organization play a key role in ensuring that an organization is above its competitors. The significance of operation is that it involves the conversion the resource that the organization has, to goods and services that are enjoyed by the customers. In addition, effective operation system improves both customer services and efficiency simultaneously. An organization may use competitive priorities such as flexibility, quality, cost, speed and dependability to maintain a higher influence in the market compared to its competitors (Hill 2000). Studies in the market have clearly indicated that costs of services and goods offered, may either lead to an organization maintaining or losing the customers to rivals. An organization need then to focus on operation management to reduce inaccurate forecasts and production costs. Production costs are associated with production operations: quality, maintenance and inventory management. One way to reduce costs is to improve the efficiency of quality operations and production. The costs can also be reduced by optimizing the amount of inventory buffers and capacity used (John & Clark 2005). This may be accompanied by providing clear visibility across operations, optimizing asset and utilization of raw materials, and activating continuous improvement teams. The resulting of this is an affordable and acceptable cost to the customer putting into consideration that the organization is maintaining its objectives in sales. Reduction of production should not have a negative effect on the quality of goods and services offered by the organization. In order for an organization to gain fully over the competitors, it has to ensure that the quality offered satisfy the customers. Right quality does not necessarily indicate the best quality. In actual fact, the quality is determined by the technical characteristics that are suited to specific requirement and the cost of products. Quality services should be delivered by a loyal and trained staff to the satisfaction of the customers. Therefore, an organization should aim at producing optimal quality at reasonable price to attract more customers gaining over their competitors. Flexibility is mostly seen in intangible outputs, that is, in service transactions. Organization flexibility is put to test as a customer needs will tend to vary due to their different perception of what exactly they want. Fluidity of trends and fashions, will force the management to be flexible in the activities of the organization to suit the customers. The management of an organization has to ensure that both the suppliers and customers can rely and depend on it in its operation. Dependability will lead to building of confidence and an organization will be able to maintain its customers and eventually beat its rivals (Slack et al 2010). Customers will tend to be attracted to an organization that offers speedy and timely services and products. This will compel an organization to maximize its production management in order to compete effectively with other organizations. It has been proven that product design may either make an organization be more or less competitive in the market. A well competing organization will definitely ensure that its products and service are design in a way that is unique and attractive. However, development of new products and launching is a great challenge to an organization; operation management will then come in handy to assist in planning and organizing these activities. Development and product design provide a unique link between customer expectation and needs, marketing and all the activities needed in production (Hill 2000) An effective organization will therefore, maintain its objective to satisfying the customer. Operating system provides necessities to a specification that will satisfy the customers in terms of cost and timing. Additionally, utilization of resources for customers’ satisfaction, that is, obtaining the utmost effect from resource, is another objective of an organization. It is advisable that the operation management should put in mind both objectives in order to have not only an effective competition but also a healthy one. In conclusion, effectiveness and efficiency of the operation system may be measured by cost, quality, reliability, flexibility and dependability which relate directly to the competitiveness of an organization, locally, nationally and internationally. Modern developments in advanced tool and techniques, systems such as flexible manufacturing, automation and use of robotics are taking place in order to achieve better improvements in quality, dependability, flexibility, cost and reliability, therefore better management and the organization competitiveness is reflected. Question 3(C) A rational borrower should place an order for loan amounts that do not add so much cost for which the benefits are few (Brown and Matysiak, 2007). The loan amount that reduces overall cost is; therefore, the most economical quantity to order (referred to as EOQ) since it minimizes the balance of costs between ordering costs and holding costs for the loan. In this case, both holding costs and ordering costs are equal ($2510). These two costs are added together to determine the total cost of loan: $2510 + $2510 = $5020. The loan amount that corresponds to this least cost is the EOQ ($2478948). This is the most economical loan amount for Christie to borrow whenever she needs to purchase inventory. If Christie borrows a loan amount that is less or greater than $2478948, the company will incur a higher cost with regard to the loan amount borrowed (Hilton, 2004). Holding or carrying cost refers to the costs incurred by the company because the company maintains the loan. This cost has a direct relationship with the loan amount borrowed. Therefore, the higher the amount borrowed, the higher the holding cost. Ordering costs are the costs associated with the procedures to be followed in order to obtain the loan. Ordering costs have an inverse relationship with the number of loans the company borrows in a year. If the number of orders is many, then ordering cost will be high. Therefore, the company should borrow a large loan amount in order to reduce the number of orders it makes for the loan hence reduce ordering costs. The total number of orders for loans that the company should make in a year is 2, which maintains ordering costs at the minimum level. The company should ensure that it has some loan at any time in order to avoid stock out costs. Although stock out costs are difficult to quantify, they may be significant hence should be avoided. The reorder level is dependent upon the lead-time and usage during the lead-time. Given that the duration taken to process the loan by the bank is 15 days, then the level of cash at which the company should apply for a new loan is calculated as 17000*15 = $255,000. A graph illustrating the relationship between holding cost, ordering cost and total cost Ec is the total cost at the EOQ. Notice that any other amount of loan less than or greater than the EOQ will lead to a higher total cost. Also the total cost curve is above holding cost and ordering cost curves since it is the total of the two costs. The ordering cost curve slopes downwards from left to right. Price discounts for quantity purchased has financial benefits of lowering price per unit (Fess and Warren, 2004). The larger quantity means that fewer orders need to be placed so that total ordering costs are reduced. However, price discounts have adverse consequences of increased costs. These costs arise from the extra loan holding costs caused by the average loan level being higher due to the larger order quantity. Notice that when the bank lowers the origination fee from 2.25% to 2.00%, the optimal amount of loan increases to $2629322. This loan amount is preferable as it reduces the number of orders hence ordering costs are reduced. REFERENCES Brown, G.R. and Matysiak, G.A., 2007. Real Estate Investment: A Capital Market Approach. London: Financial Times. Fess, E. and Warren, C., 2004. Accounting principles. Canada: Southwestern Company. Harrison, A, and van Hoek, R, 2002, Logistics Management and Strategy, 2nd ed. , Harlow: Prentice Hall Hill, T, 2000, Manufacturing Strategy, text and cases, 2nd Edition, Basingstoke: Palgrave Macmillan Hill, T, 2005, Operations Management, 2nd Ed. , Basingstoke, Palgrave Macmillan Hilton, R. W., 2004. Managerial Accounting: Creating Value in a Dynamic Business Environment. New Delhi: McGraw-Hill Publisher. Johnston, R, and Clark, G, 2005, Service Operation Management, 2nd ed., Harlow: Pearson Education. Johnston, R, Chambers, S, Harland, C, Harrison, A, and Slack, N, 1997, Cases in Operations Management, 2nd., London: Pitman Publishing. Slack, N, Stuart, C, and Johnston, R, 2010, Operation Management, 6th ed., New York: Pitman Publishing. Read More