Course Title: Operations Management Textbook Operations Management: An Integrated Approach (4th edition) R. Ried Nada Sanders, 2010 ( chaps attached) This assignment part 2 a previous assignment I chose a fitness center business choice.
Measurement of quality characteristics of business
Measurement of business quality and selection of statistics which will be used to measure business quality depends on three major activities. The first is the selection of goals upon which the company is rated. The second activity is gathering of business information which is relevant to the goals earlier identified. The last item is the strategies put forth by managers within the organization in light of the goals and information provided which help to improve future performance along the goals identified. These three activities all circle around the selection of goals which is seen as the basis upon which the success of any organization is measured. These activities also need to run concurrently instead of the sequential nature in which they seem to be. This is because each step is influenced by the previous one which in turn drives the next one.
Many organizations use key performance indicators (KPIs) to measure their quality characteristics. These KPIs are majorly dependent on the organization's main product and the resources available. A similar system is proposed for use in this organization. The first set of KPIs that will be used is the customer-related numbers. This includes the number of new customers that the company acquires, the satisfaction level of existing customers and the reasons why existing customers may decide to choose another company. These three customer-related numbers will help to understand consumers and their behavior thus help in market targeting as well as other sales activities Waddock & Graves, 1997()
The second set of KPIs is the profitability numbers. These include the gross profit which is the total revenue of the company minus the cost of all goods sold (COGS). Overheads such as research and development, sales and marketing costs and employee remuneration have not yet been subtracted. Net profit after tax is also an important KPI since it is the total revenue of the organization minus all expenses and taxes. These statistics can be used to measure the performance of the company year after year or on a monthly basis in order to judge the effectiveness of the strategies being applied by the management.
The third set of important KPIs is generated from the marketing-channel analysis. The identification of KPIs in this set involves first identifying whether the strategies are short-term or long-term. For short-term goals, some of the KPIs include the number of new customers within a defined period of time and the effectiveness of marketing strategies in promoting sales of a new product. Some of the KPIs for long-term goals include identifying the geographical dispersion of customers in order to determine the company's target region and determining consumer satisfaction with the company's products. A demographic analysis of consumers and understanding the consumer satisfaction levels is important in developing consumer targeting strategies as well as understanding the effect of different product designs and marketing strategies. These are KPIs that can only be identified by collecting data over a long period of time.
Other statistics that can be used to measure quality characteristics of the business include the turnover of the organization which can be grouped by the different products and services provided to consumers, outstanding balances, and number of bad debts of the organization. For either of these statistics to be valuable to the company, there is a need to ensure timely availability of the data which helps in analyzing the KPI or statistic. Therefore data used in this purpose will be made available on monthly basis in order to ensure the people conducting the analysis of business quality characteristics have sufficient data to enable them discern any trends or patterns in consumer behavior Keeble, Topiol, & Simon, 2003()
Key concepts in capacity planning and facility location
Capacity planning can be defined as the ability of an organization to achieve a particular output level within a defined period of time. It involves the ability of the management to ensure there are sufficient input resources to achieve the desired output level which is relative to the input. Capacity planning thus helps to determine the optimum level of resource utilization that is necessary to achieve a particular output. Thus it is an important decision-making tool for any organization. It can help, for example, in determining whether to modify product lines by adding more machinery or to start new products lines Karabuk & Wu, 2003()
In capacity planning, the organization must be able to identify its various capacities. The first is design capacity which is the maximum output that can be achieved by the equipment available. The second is the production capacity which is the maximum output that can be achieved in normal working conditions. The third is the sustainable capacity which is the maximum production level that can be achieved realistically while considering the normal maintenance schedule and possible machine breakdown. Last is the effective capacity which is the optimum level of production that is achievable under a predetermined work schedule keeping maintenance schedules and normal machine breakdown in consideration Fleischmann, Ferber, & Henrich, 2006()
Capacity planning can be divided into three categories. The first is long-term capacity planning which is the long-range capacity of the company and depends on various factors such as the design capacity, effective capacity, production capacity and sustainable capacity. The second is medium capacity planning which is undertaken by an organization for a period of between 1 to 3 years. Last is short-term capacity planning which an organization undertakes for a weekly, monthly, or quarterly timeframe Aghezzaf, 2005()
Forecasting is another important concept in capacity planning since all capacity planning involves forecasting the market needs at a particular time in order to shift production to be able to meet those needs. Effective forecasting directly influences capacity planning. Other factors that influence capacity planning are facility design and location, availability of human capital resources, operational scheduling, policies and safety regulations, and production technology available.
Facility location is defined as the optimal facility placement to meet the needs of consumers in order to beat competitors while minimizing transportation costs of both inputs and the final product to consumers. It also involves avoiding situating facilities which may release hazardous materials near residential areas. In facility location, there are three major concepts that are important. The first is the location of the facilities in order to minimize total costs in serving the consumers and second is the region or area that should be served by each facility. The last concept is the standardization of production in order for the products from each facility to be similar in all ways.
Other inputs such as source of labor, water, electricity should also be included since it is one of the ways in which the company or organization can standardize their products and minimize costs associated with production. Focusing of factories is also an important concept in facility location since the management may decide to have a certain facility focus on producing a particular product while others produce similar or different products. This kind of focused production helps to meet the short- and long-term production needs of the business by ensuring flexibility of production.
In both facility location and capacity planning, economies of scale are an important concept since it is the optimum operating level of the organization. It ensures that the cost of inputs is kept low by ensuring maximum volume is produced.
Aggregate plan to maintain competitive advantage
Aggregate planning can be done in two ways. First is the chase strategy which involves setting production to be equal to the forecasted market demand. The chase strategy is best suited for an organization whose demand is unstable and thus there is need to ensure flexibility in production to meet these fluctuations in demand. The downside to this is that the organization may have higher hiring and training costs since it cannot keep a constant number of employees and production level. The level strategy on the other hand involves maintaining production at a constant output level. This strategy is best suited for organizations whose demand is stable and thus the organization is able to keep production at a constant rate. In this case, the workforce does not need to change thus there is no need to incur costs associated with workforce changes. The disadvantage is that the inventory costs are high since inventory can be quite high during months where demand is low since production is constant. The hybrid strategy integrates both the chase and level strategy and the strategy to be used at a particular time depends largely on the key performance indicators of the organization. The hybrid strategy helps to keep inventory rates at a manageable level since it involves maintaining production at a constant rate and only increasing it at the time when higher than normal demand is anticipated.