The Contribution of Operations Management - Essay Example

Opertions Mngement [Nme of the School] [Nme of the Introduction The vlue tht is dded by both opertions mngement nd opertions strtegy is fundmentl to most orgnistions. Opertionl ctivities re centrl to the provision of services nd/or goods. Every orgnistion provides product nd service combintion. mel in resturnt, visit to the hospitl, buying pir of Levi 501s, mking pir of Levi 501s, Woodstock Festivl, insuring n utomobile, stying in n hotel, going to the cinem, even the workings of prison; ll hve opertions ctivities nd their mngement is centrl to the successful provision of goods nd services. Even Government deprtments cn drw hevily upon opertionl inititives nd strtegies when they tlk bout supply chin mngement, len supply, just in time nd totl qulity mngement. This pper ims to offer the reder n insight into the importnce of opertions mngement nd gives firm pltform for the study of opertions strtegy. The contribution of n opertions strtegy is lso outlined s prt of hierrchy of strtegies tht we might find in ech firm. It gives n insight into wht is exctly n opertions strtegy nd wht re its components, how esy is it to implement such strtegy nd wht cn n orgnistion expect from it. Bsiclly, the pper discusses the question of diversity of tsks tht opertions mngement incorportes nd tht these tsks should be combined to rech the potentil of opertions executed. 1. The contribution of opertions mngement Opertions mngement hs its origins in the study of 'production' or 'mnufcturing mngement'. (Pine, Boynton, 2003) These terms still very much pply to mnufcturing orgnistions tht will hve distinct opertionl ctivities tht convert sy, bens nd rich tomto suce into cns of bked bens to be sold by retiler. Thus, we cn initilly think of opertions mngement s being prt of distinct function producing product nd service combintion, just s we hve mrketing nd ccounting functions in mny orgnistions. The first definition of opertions mngement is therefore: The design, opertion nd improvement of the systems tht crete nd deliver the firm's primry product nd service combintions. (Pine, Boynton, 2003) Every orgnistion tht offers goods or services hs n opertions ctivity. s fr s the orgnistion structure is concerned, some firms will hve discrete opertions function. This might be clled mnufcturing deprtment, n opertions system, or hve no identifible nme t ll. However, like mrketing nd ccounting, it is fundmentl function of the firm with professionlly trined opertions or production mngers responsible for conversion of resources into the required product nd service combintions. In some orgnistions such mngers will hve different titles, store mnger for retiler, dministrtive mngers within hospitl or distribution mngers in logistics compny. This first definition tends to be rther nrrow s it pplies to core conversion processes (mostly mnufcturing). We need therefore to widen the definition of opertions mngement to second level: The design, opertion nd improvement of the internl nd externl systems, resources nd technologies tht crete nd deliver the firm's primry product nd service combintions. (Piore, Sbel, 2004) This definition expnds the opertions mngement concept beyond just internl production or mnufcturing. Now it will encompss other ctivities such s purchsing, distribution, product nd process design, etc. Further, there will lso be externl mngeril responsibilities t supply network level, covering number of interconnections between externl firms. Incresingly, however, modern economies re built round services nd experiences, nd here opertions mngement is no less importnt. s Slck, Lewis (2002) point out, there should be broder viewpoint tht will tke into ccount ll ctivities throughout the firm tht hve ny connection with delivery of service on dy-to-dy, 'mke it hppen' bsis. This brings us to the third definition of opertions mngement: The design, opertion nd improvement of the internl nd externl systems, resources nd technologies tht crete product nd service combintions in ny type of orgnistion. This definition hs subtly chnged from the second. It now includes both mnufcturing nd non-mnufcturing firms (the service sector - whether profit or non-profit mking) nd more importntly, covers opertionl ctivities nd systems throughout the orgnistion, whether performed by n individul, group, unit or deprtment. For exmple, mrketing or sles function cn lso be viewed s n opertionl ctivity - this lso gives us the notion of internl consumers nd suppliers. ll ctivities in n orgnistion will crete product nd service combintion (the ltter might include informtion) supplied to either n internl or externl consumer. Similrly, other internl/externl suppliers will lso support these ctivities. We cn now see tht the brod definition of opertions mngement covers the min ctivities throughout firm nd its supply network contributing to the delivery of product nd service. These ctivities nd their vrious interfces cn best be viewed s number of consumer/supplier linkges. (Russell, Tylor, 2001) Now, if one ccepts the bove definitions, it becomes cler tht opertions hs strtegic contribution to mke in supporting the needs of customers nd consumers: the purpose of this book.Now the nture of opertions mngement is exmined in more depth nd expnd on the need for n opertions strtegy; prtly, n integrting system between these opertionl ctivities nd the wider business strtegy. 2. Types of opertion nd the flexibility needed Orgnistions undertke mny diverse ctivities in providing different types of product nd service. Often they will hve numerous suppliers nd customers. Our point is tht modern orgnistions re complex entities nd there will be mny different types of opertion, both in individul firms s well s cross different industries. Clerly types of opertion will vry cross different sectors. luminium smelting is mrkedly different to cll centre or deling with insurnce clims. We need to think bout the vrious opertionl types genericlly nd how we cn offer txonomy of opertionl forms. One wy of clssifying the different types of opertion witnessed in ny orgnistion is to equte them to the ctivities undertken nd the degree of flexibility sought. ctivities cn tke plce within distinct opertionl function, throughout the whole orgnistion nd encompss other orgnistions in supply nd demnd network. Likewise, the degrees of flexibility cn be viewed t different levels. Before going further, we need to spend little time thinking bout the concept of flexibility. Flexibility cn be exmined from the viewpoint of three prticulr issues: the stimuli for greter vriety, the vrious clssifictions of flexibility, nd the mesurement of flexibility. 1) The stimuli for greter flexibility Flexibility in opertionl systems is s response to the need for vriety nd its ttendnt uncertinty. The former cn be viewed s being demnd driven, while the ltter re supply dilemm. CONSUMER DEMND FOR VRIETY In the lst four decdes consumer tstes hve ltered rdiclly. Consumer demnd in mny sectors for both goods nd services is displying piecemel, disjointed nd unsystemtic tendencies nd thus becoming incresingly difficult to stisfy. Consumer purchses re more thn ever reflection of lifestyle or fshion sttement rther thn the stisfction of bsic need, nd this is only the beginning. To this hs to be dded the complexity of instntneous, electronic, worldwide communiction, nd n informtion explosion tht hs served to educte the verge shopper beyond ny level seen to dte. To meet these chnging demnd ptterns, orgnistions hve to rect more speedily, while t the sme time voiding the penlties ssocited with incresingly voltile demnd. (Stcey, Griffin, Shw, 2000) Empiricl reserch dt lso confirms some of these trends. In 2004/2005 survey of UK retilers nd mnufcturers in fst-moving consumer goods (FMCG) industries ws conducted by the Strtegic Opertions Mngement Reserch Centre t the University of Est ngli. Eighty-five per cent of retil respondents greed tht 'for sle' sesons were becoming much shorter. In ddition, 93 per cent of respondents to the survey witnessed trend towrds greter product voltility, fshion influence, difference nd customistion over the lst three yers. Similr questions were posed to seprte survey of mnufcturers. Here, 81 per cent greed tht sesons were much shorter, 87 per cent sw more voltility in style introductions, nd 93 per cent believed unique nd customised goods to be of incresing importnce (Lowson, 1999). These chnges in the business environment re bringing bout unprecedented reconfigurtion of consumer demnd, s witnessed by mny orgnistions supplying product nd service combintions. In turn, these forces re being pssed long supply nd demnd systems. Unfortuntely, the further wy from the point of sle, nd indiction of demnd preference, the hrder it becomes to rect in n effective nd efficient mnner. Recourse to long term forecsting becomes virtully useless s complexity nd dynmism continue to grow. This brings us to the second problemticl re when considering the driving forces for vriety, the inherent uncertinty tht this brings. DEMND UNCERTINTY If we ccept the picture of incresing vriety in both goods nd services nd the serch for wys to customise products t n individul level, we cn see tht mny industries re chrcterised by difficult trding conditions. Unfortuntely, modern orgnistions re ill-equipped to del with such uncertinty. First short history lesson. t the beginning of the twentieth century, mnufcturing, for exmple, ws chrcterised by n emphsis on mss-mrkets, high volume, nd the use of interchngeble prts. (Lumus, Vokurk, 1999) When the principles of scientific mngement, s promulgted by Frederick Tylor nd his disciples, were lso dopted, it produced new er of industril power tht ws egerly exploited by the likes of Henry Ford, Isc Singer nd ndrew Crnegie. The dogm ws cler. For utmost efficiency in ny fctory: divide work into the smllest possible components; ssign the tsks to specilists; ppoint mngers to supervise nd mke decisions, leving workers free to concentrte on mnul tsks; reduce vritiosn to minimum; stndrdise ll inputs nd outputs to reduce defects; exercise control through rigid hierrchy which chnnels communiction in the form of exception reports upwrd nd directives downwrd; mesure performnce by cost, scle, experience, nd length of production run; nd employ forecsting systems in order to nticipte ny possible chnges. (Stcey, Griffin, Shw, 2000) In 1974, Wickhm Skinner proposed the ide tht mnufcturers hve to lern to focus their plnts (or even deprtments within plnts) on limited rnge of technologies, volumes, mrkets nd products, nd tht strtegies, tctics, nd services should ll be rrnged to support tht focus. The mxim ws tht fctory tht succeeds in focusing its ctivities will outperform one tht does not. Costs would be lower thn in unfocused opertions due to experience curve nd scle benefits; consequently focus provides competitive dvntge (Skinner, 1974). There re, however, lwys trde-offs with such n pproch; for exmple, low cost nd flexibility re inpproprite bedfellows. If the mrket demnds greter vriety nd diversifiction, the focused fctory comes under considerble strin, often llevited only t the expense of high inventory levels. s we reched the 1980s, it soon becme pprent tht orgnistions operting in this mnner were unble to cope with one prticulr demnd: vriety. Fundmentl nd rdicl new methods of orgnistion nd mngement were needed once the demnd for diversity reched criticl level. The next fctor we need to consider is the chnges tht these stimuli hve engendered in orgnistionl structure. 2) The clssifiction of flexibility Opertionl flexibility nd the ctivities tht comprise it cn be witnessed t three levels in n orgnistion, no mtter whether providing service or good: I. t n inter- nd intr-orgnistionl level. strtegic choice: both the firm nd its supply nd demnd systems re concerned with the bility to offer prticulr level of flexibility in its product nd service combintions; II. t n opertions level. Whether in distinct opertions function or throughout the orgnistion, concern for whether the opertions ctivities re cpble of sufficient product nd service flexibility. III. t n individul, resource, process nd structure level. re our humn resources (whether s individuls or in tems or groups), other resources (mchinery, etc.), our processes (stges or ctivities necessry to complete tsk) nd structure (how the system is orgnized nd governed) sufficiently flexible to mtch the vriety of tsks required to support levels 1 nd 2 The strtegic nture of flexibility pplies t totl supply nd demnd system nd orgnistionl level (1 nd 2 bove). Thus, we cn conceptully think of flexibility s being both n externl nd internl response to the vlue demnded by the customer. EXTERNL RESPONSE TO CUSTOMER VLUE DEMNDS - Product nd service combintion flexibility. The bility to introduce nd modify products nd service combintions ccording to demnd vriety. - Mix flexibility. n bility to chnge the rnge of product nd service combintions being produced over given time period. - Volume flexibility. Being ble to chnge the level of n opertions output over time. - Logistics flexibility. n bility to provide the flexibility tht determines when nd where nd how product or service is provided. - Monetry flexibility. flexibility over when, where, nd how pyment is mde for the necessry goods nd services (including interests rtes, instlments, etc.) - Contct flexibility. The degree of direct contct with customers nd the influence this hs upon vlue nd customer stisfction. Flexibility requires firm's internl nd externl boundries to be redrwn. tkinson (1984), using the flexible firm model, debted the implictions for mnpower, work nd employment. He identifies three types of flexibility to which we dd further two below. INTERNL RESPONSE TO CUSTOMER VLUE DEMNDS - Functionl flexibility. Redeployment of workers s the product nd production tsks require. - Numericl flexibility. The cpcity to mke chnges in employment levels to mtch demnd. - Finncil flexibility. Py nd other employment costs reflecting the objectives of numericl nd functionl flexibility. - Temporl flexibility. Flexibility in timing work rrngements to mtch demnd needs. - Technologicl flexibility. The flexibility of process technology to be used for multiple purposes. Given the importnce of flexibility, it seems dvisble tht n orgnistion devises methods to scertin the levels it requires. However, flexibility is concept tht is difficult to quntify nd opertionlise - to degree, ech business must ssess its individul impct in terms of the generl benefits nd costs it brings. 3) Types of opertions revisited Hving given considertion to the vriety of demnds plced on n orgnistion nd the consequent flexibility necessry for modern opertions, we now return to generic types of opertions possible. This cn be done by expnding upon the vrious types of flexibility encountered nd ddressing the two flexibility clssifictions: externl nd internl response to customer vlue demnds. EXTERNL RESPONSE TO CUSTOMER VLUE DEMNDS Product nd service combintion flexibility; Mix flexibility; Volume flexibility; Logistics flexibility; Monetry flexibility; Contct flexibility. INTERNL RESPONSE TO CUSTOMER VLUE DEMNDS Functionl flexibility; Numericl flexibility; Finncil flexibility; Technologicl flexibility; Temporl flexibility. s we cn see, the vrious flexibility ctegories will hve direct impct upon the types of opertion involved nd their orgnistion. Those firms specilising in highly customised customer flexibility will lso hve high internl flexibility nd will be complex in nture, with much vriety nd chnge. n cute understnding of demnd nd their environment is importnt s their mrkets re lso likely to be complex, competitive nd fst moving - in short this type of business will often be described s orgnic nd highly contingent upon its environment (Burns nd Stlker, 1961). In ddition, the styles of opertion nd orgnistion will lso vry between the orgnistionl subunits. Hence the degree of differentition in opertions will lter ccording to the nture of the industry nd its environment. n pproprite degree of integrtion will lso be required to tie these differentited opertionl ctivities together (Lwrence nd Lorsch, 2005). Conversely, industries nd sectors requiring lower levels of flexibility re likely to be populted by firms with more stndrdised, routine opertions producing product nd service combintions tht offer little chnge. Demnd over time is stedy nd esier to forecst. Firms cn specilise in higher volume opertions to tke dvntge of economies of scle nd experience curve benefits. More mechnistic in nture, these businesses will utilise regimented nd stereotypicl opertions tht will chnge little cross the whole orgnistion. 3. Modern Opertions Mngement "Modern opertions mngement did not come into its own until probbly the lte 1950s" (Meredith, moko-Gymph, 1990), with plethor of texts covering wht re now widely recognised s stndrd topics, such s production plnning nd control, fcilities design, mterils mngement, cpcity mngement nd qulity mngement (see, for exmple, Buff, 1969; Chse nd quilno, 1973; Johnson et l., 1972; Lowe, 1970). Mny of these texts dopted n pproch clerly influenced by systems thinking. They lso recognised the limittions of the "scientific pproch". One of the mjor developments in the 1970s nd 1980s ws the widespred introduction of the use of computers into orgnistions. The most significnt ppliction in opertions hs been the development nd utilistion of computerised mteril requirements plnning (MRP) to the control of mterils, components, subssemblies nd finished products (Chse nd quilno, 1973). Other pplictions hve included mteril nd workforce scheduling nd performnce mesurement nd control. The 1980s nd 1990s hve lso seen the cceptnce nd implementtion of the "new" mngement philosophies of just-in-time nd totl qulity mngement. These re now the cornerstones of production prctices in mny mnufcturing firms. These more orgnistionlly holistic nd integrted philosophies hve lso plyed prt in forceful emergent trend in opertions mngement; the strtegic impertive. This impertive resulted in the evolution of opertions mngement into more integrtive, strtegic-oriented subject, less concerned with internl efficiencies nd more concerned with the effectiveness of the subject longside other functions. second emerging impertive, relted to the strtegic impertive, hs been specific concern with service opertions nd recognition of the importnce of service s competitive wepon for both service nd mnufcturing orgnistions. Opertions mngement now is becoming more outwrd fcing subject tht works closely with other functions nd disciplines. It is concerned with chieving greter strtegic input into the mngement of the orgnistion nd with the development of n opertion to meet the needs of the mrket. This, however, is perspective tht is not embrced by ll opertions mngement reserchers, mny of whom re still concerned with the ppliction of quntittive techniques to improve the efficiency of opertions subsystems (see, for exmple, Meredith et l., 1990). Problems of Opertions Mngement Products rech customers through chin of retilers, distributors, wholeslers, mnufcturers, nd component suppliers. Opertions mngement is intended to ccelerte the flow of goods, informtion, nd cpitl in both directions, long the chin's entire length, nd to help compnies monitor tht flow. Becuse the costs of mnging the opertions--inventory, the wrehouse nd distribution center, nd freight--cn represent 10 to 15 percent of sles in most industries, the svings tht B2B exchnges promise could hve genuine impct. Indeed, progrms to improve operttions might rise mrgins by 1 to 2 percent of sles nd improve customer service drmticlly. Yet most exchnges hven't delivered these benefits. First, n exchnge cn't wring huge efficiencies out of ll elements of the opertions mngement; in fct, it cn hve no impct t ll on some of them, such s the physicl flow of goods. n electronics mnufcturer in Cliforni, for exmple, must mintin surplus inventory becuse otherwise the compny wouldn't be ble to fulfill unnticipted orders until the components for them rrived; those from Tiwn, for instnce, my tke severl weeks to cross the Pcific nd cler customs. t best, the improved informtion flow or collbortion tht n exchnge offers my eliminte the three to five dys ordinrily spent plnning, negotiting, nd documenting trnsctions. The second reson for the filure of B2B exchnges to function s promised is tht they themselves hve perpetuted certin inefficiencies by filing to recognize tht the sme opertions mngement segment in different industries, nd different opertions (or segments thereof) in the sme industry, my require different improvement levers. In men's pprel, for instnce, retiler could hve number of opertions. One might replenish perennils such s undershirts, white dress shirts, nd size-40 regulr nvy blzers, while second might stock fshion items, for which demnd vries ccording to the seson, the effectiveness of efforts to promote them, nd their inherent ppel. grocery retiler, menwhile, must mnge the flow of perishble produce (such s lettuce nd pples), for which demnd tends to be firly predictble, nd of nonperishble products (such s soft drinks), for which it cn be influenced by hevy promotion. Insted of developing services bsed on different segments of the opertions, retil B2B exchnges hve so fr tried to serve ll of these needs t once. Third, mny compnies tht own informtion think it gives them crucil competitive dvntge nd therefore fer shring it freely, though compnies up nd down the opertions mngement would benefit if they did. Compnies know tht their business processes nd decision support systems hve direct impct on their costs nd revenue. The level of mutul coopertion nd trust tht prticipnts in B2B exchnge must hve before ggregting their purchses of, sy, copy pper is trivil compred with wht would be needed to get them to shre informtion--for exmple, bout forecsts, product life cycles, nd bills of mteril. The ide of confiding finncil dt to n exchnge genertes even greter skepticism. Precisely becuse Dell Computer nd Wl-Mrt, for exmple, derive competitive dvntge from their exclusive collbortions nd from the proprietry shring of informtion with their suppliers, they hve voided public B2B mrketplces nd exchnges. Moreover, the tools nd techniques needed to optimize nd integrte finncil flows re just coming into brod use. Even if it were possible to lly bsic fers bout the shring of informtion, thorny chllenges for B2B exchnges would remin: providing security, imposing formts for conveying informtion, nd ensuring tht members shre informtion firly. Conclusion This pper hs described the contribution of opertions mngement to the study of business, mngement nd orgnistionl theory. Definitions hve been provided tht mkes to understnd tht opertions mngement diversified tsks re closely relted to ech other nd do not provide efficiency when being implemented independently. The pper hs lso discussed the types of product nd service combintions now supplied by most commercil orgnistions s well s link ws mde between opertions nd flexibility often required in modern enterprise. It cn be thus concluded tht opertions mngement is concerned with the efficiency nd effectiveness of the opertion in the support nd development of strtegic gols. It is concerned with the design nd opertion of systems to provide goods nd services. The subject hs been developing over centuries nd hs furnished us with set of recognised nd well developed concepts, tools nd techniques, mny of which hve been pplied in service settings nd others specificlly developed for service orgnistions. References 1. tkinson, . (1984). "Mesure for Mesure." CM Mngement 74 (September), 22-28. 2. Buff, E.S. (1969), Modern Production Mngement, Wiley, New York, NY. 3. Chse, R.B. nd quilno, N.J. (1973), Production nd Opertions Mngement: Life Cycle pproch, Irwin, Homewood, IL. 4. Burns T, Stlker GM. (1961). 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(2003) 'Mking Mss Customistion Work', Hrvrd Business Review September/October 108-19. 13. Piore M.E. nd Sbel C. (2004) The Second Industril Divide: Possibilities for Prosperity, Bsic Books, New York. 14. Russell R.S. nd Tylor B.W. (2001) Opertions Mngement, Prentice Hll, Englewood Cliffs, NJ. 15. Swmidss P.M. nd Newell W.T. (2001) 'Mnufcturing Strtegy, Environmentl Uncertinty nd Performnce: Pth nlytic Model', Mngement Science 33, 4, 509-24. 16. Skinner W. (1974) 'The Focused Fctory', Hrvrd Business Review My/June 113-21.. 17. Slck N. , Chmbers S. nd Johnston R. (2001) Opertions Mngement, Finncil Times nd Prentice Hll, Hrlow, UK 18. Slck N. nd Lewis M. (2002) Opertions Strtegy, Finncil Times nd Prentice Hll, Hrlow, UK. 19. Stcey R.D. , Griffin D. nd Shw P. (2000) Complexity nd Mngement, Routledge, London. Read More