A Series of Operations Management Questions

¶ … operations management and operations strategy.

Using an example of your own, explain how operations performance objectives can change over time.

Explain which factors that influence the timing of capacity change.

Explain how developments in process technology can change trade-offs in the product-process matrix.

Explain the main differences between continuous and breakthrough improvements.

Describe a typical stage gate model of the product and service development process.

Describe the different ways in which headquarter operations staff can act to create value for their company and its individual operations.

Explain the difference between pure risk and speculative risk.

Question 1 -- Brintons Carpets Ltd.

Question 2 -- Operations Strategy analysis of IKEA

Question 3 -- Hagen Style

Differences between operations management and operations strategy.

the systematic approach to address the challenges and the issues that relate to the transformation of raw materials or any other form of input into output so that the output is useful for the customers and which can be sold against a price to generate revenues for the respective organization is described as operations management. The aim of operations management is to create a balance between the input and production costs and the revenue generated in such a way so that the organization gets the maximum operating profits possible. In other words, the responsibility of operations management is to create and design processes so that inputs get converted in to outputs in a manner which is the most beneficial for a company. The process of operations management includes development of a systematic approach in order to understand the problems, collection of relevant data and the development of solutions that are effective and efficient.

The process that helps in taking decision about the key operations in a process where input is transformed into outputs and which are in line with the ultimate strategic objectives of the company is defined as operations strategy. The formulation of operations strategy involves finding the answers to 'how' of reconciling with the market requirements with the help of operations resources that gives advantage to the organization over the long-term. It is also defined as the process that gathers collective and concrete actions that are mandated or guided by the corporate strategy of the firm. It is within the realm of operations functions and binds the different operations decisions as a response to the competitive forces and priorities of the organization as well as the external forces in the market.

2) Using an example of your own, explain how operations performance objectives can change over time.

Companies and firms generally try and satisfy its customers' needs and wants through fast and dependable delivery of goods and services at prices that are reasonable while maintaining a good quality of the products and services. The companies also organize their operations in such a manner that they can incorporate any changes in the external business environment as well as in its supply chain. This is done with the five basic performance objectives that companies look to achieve in order to satisfy its customers and to gain market share thus. These are quality, speed, dependability, flexibility and cost.

We take the example of Toyota that has changed its operations performance objectives over time. It started off with making expensive cars primarily for the home market in Japan with quality and speed of delivery being primary operational performance objectives. However, as the company grew it expanded its market and became a global player in competition, it changed its priorities and started to adapt to the global competition and catering to the global market needs. The company began making cars that were affordable thus focusing on costs of products. Another aspect that gained predominance for the company over the years was to be able to deliver products as and when the customers needed thus enhancing the speed of delivery. However, the global customers required cars that catered to local needs and hence the company production process incorporated various changes in car characteristics like added safety and enhanced after sale service. Toyota incorporated these aspects in its operations thus also giving importance to flexibility in operations performance objectives. This exemplifies the changes that Toyota underwent with respect to its operational performance objectives over time.

3) Explain which factors that influence the timing of capacity change.

The competitiveness and the profitability of a company is dependent on successful timing of moves and measures. Waiting too long to take a decision and moving too slow can result in companies losing momentum. Hence companies need to either follow a proactive or a reactive strategy which is applicable for capacity building strategies also.

Capacity building is the alteration in the production and supply capacity of companies that firms decide on depending on predicted and historic demand statistics and data. Building of capacity -- especially augmentation of capacity, involves extensive planning, data collection anticipation and financial commitments and investment. Since a lot remains at stake while companies augment or bring in changes in capacity, the accurate timing of such a strategy is critical in the company achieving the desired goals and objectives from the measure. It can be for short-term or long-term periods.

The factors that are critical to determine the timing of capacity change include the determination and calculation of the long-term and short-term demand forecasts. Seasonal factors are important consideration for timing of capacity change. For example, power generation companies need to augment their capacity generation in the extreme cold and hot months in the anticipation that consumption would be high during these seasons. However, the timing of capacity change -- specifically capacity augmentation also depends on the cost of building the change and the operating costs of the facilities, the technological changes that are required and competitive factors like the behavior of competitors. The availability of the capital and other inputs for production, flexibility in the production process and the potential benefits against the costs of capacity change are also important considerations that determine the timing of a change in capacity building.

4) Explain how developments in process technology can change trade-offs in the product-process matrix.

A tool that analyses the relationship between the life cycle of a product and the technological life cycle is described by the term product-process matrix. This matrix is used to examine market-manufacturing resemblance issues which in turn help in understanding the strategic options that are available to a company in terms of the production process. There is a series of stages that the manufacturing of production of a product or a service that it moves through. These are the job shop, batch, assembly line and continuous flow. The stages begin with a very flexible but high-cost process and moves towards an increasing level of standardization, mechanization, and automation. Ultimately the process culminates in an inflexible yet cost-effective process. At the base of the matrix, smaller but unique products are produced with human skills. As the demand for products increases and with the availability of the right technology, the process slowly moves to the next stage where products are produced in greater volumes utilizing both human skills and technology known as batch production. With further augmentation in demand of products and available technology greater volumes need to be produced and the process of production becomes repetitive. The same steps in the production process have to be done over and over again and simply using human skills and labor would make the production process slow and expensive and thereby unable to meet the market demands. With greater automation and repetitiveness, the production process further graduates towards the use of an assembly line. While uniqueness of products decreases in this technology-based process of production, the volumes of products produced increases and the cost of production, helped by economies of scale, decreases. Greater technological development and conducive capital costs finally results in a production stage that is known as a continuous flow where the very high volumes are produced at very high standardization. This is the stage where uniqueness of products is the lowest, technological assistance is the highest and costs of production are the lowest. This transformation of the production process that changes along with change in technology and demand volume gives a competitive edge to companies.

5) Explain the main differences between continuous and breakthrough improvements.

As the name suggests, continuous improvement refers to the small, numerous and incremental steps of improvement in business processes and production process that are implement in a continuous manner over a long period of time. This can be implemented by anyone and everyone within a company with the aim of improvement of quality of the products, the work processes and the practices at work and the business processes. This process is something that comes from within the individual employees in a company indicating that the company possess a corporate culture of quality improvement and innovation. This is an ever going process and often is follows a four step quality model involving planning, doing, checking and acting. This is also referred to as the Deming Cycle or Shewhart Cycle.

On the other hand, breakthrough improvement comprises of one or more major improvements within the key business areas of an organization. Most often these are focused and uses dedicated resources that are used for a limited time period aimed at providing solutions to chronic problems. Since breakthrough improvement requires investments in time and attention, they are selected and started off by the management groups in companies where they act as steering groups. In the case of continuous improvements, it is accepted that the improvement levels are around 10 to 15% while that in the case of breakthrough improvement is far greater at around 50 to 90% depending on project scope and within a period of 9 to 12 months. While continuous improvement helps companies to attain long-term financial and market gains, the breakthrough improvements is more suited to attain financial and economic gains in the short to medium term.

6) Describe a typical stage gate model of the product and service development process.

Most of the modern companies tend to follow one form of strategy or the other. Among the most popular models is the Stage-Gate model. This model is applicable for existing products penetrating existing or new markets or the launch development and launch of a new product. In this model the innovation process is broken down into various stages from the generation of the idea to the launch. There are typically five stages in this form of model for product development and innovation. A prescribed set of actions are executed at every stage by the project team that are designed so that the project advances effectively and efficiently. A predefined set of deliverables are obtained at the end of each stage which are designed based on best practices. A 'gate' or a 'go/kill' point of decision precedes every stage. At this point the senior management takes a decision about whether to proceed with the project in consultation with the project team. The decision is made based on a prescribed list of deliverables and a set of prioritization criteria and go/kill data. Gates are also described as stages where the necessary resources are secured by the team leaders that are necessary to drive forward the project. This requirement for resources is made known to the senior management. The advantage of this process or model is that it eliminates the poor projects in the early stages of the process, yields focus, expectations are made clear to the project teams and fosters a cross-functional approach for innovation and product development. This model engages senior management appropriately in the process of innovation in the role of resources providers and decision makers.

Typically, the Stage-Gate models consist of five stages and gates that however depend on the organization's particularities. Scoping is the first stage where a quick-scan of technical merits and market prospects are done. The next stages include building a business case -- assessment of technical, marketing and business feasibility, development -- transformation of business case into concrete deliverables, testing and validation of the project and the full commercial launch of the project that starts with full production introduction in the market.

7) Describe the different ways in which headquarter operations staff can act to create value for their company and its individual operations.

Company headquarters is centrally located core of any company that performs important tasks of the company such as strategic planning, corporate communications, managing taxes and legal issues, marketing strategies and finance management, h8uman resource management and information technology. Headquarters are often associated with the overall success of the companies. generally, the headquarters are geographically away from the production units. Headquarters help in adding corporate value to companies apart from those that are got from corporate divisions. Headquarters, often referred to as the core of a business organization, and the staff employed there exploit the economies of scale in the managerial functions to add value to the company. The headquarters are also concerned with raising capital. Value addition is also done through fiduciary responsibilities of the core for shareholders along with complying to legal obligations and controlling the corporate finances. Functional resources are also pooled in by the headquarters. Corporate services are provided to b the headquarters to the business units through the "shared service" model in areas such as human resources, tax, marketing, finance and treasury which adds value to the business. This eliminates the requirement of employing relevant people separately for the various business units and thus provides economies of scale.

Communication and discussion of strategies and taking of collective decision is made possible by enhanced managerial efficiencies as senior executives work in central location. The specialized knowledge that is available at headquarters and the decision making abilities help in value addition to companies.

8) Explain the difference between pure risk and speculative risk.

In business, while taking a strategic decision, there can be two types of possibilities -- when something can happen and nothing could happen. When companies go ahead with their projects not having any idea about the ultimate outcome and situations where any measurable benefits can arise is referred to as pure risk. In this form of risks there is no possibility of gains and the risks that are resultant are beyond the control of the business but dependent on the external environment and factors. Here the only possible outcome is loss.

On the other hand, speculative risk is such a risk that is associated with one form or gain or another or an uncertain degree of gain. In this form of risk taking, the risk taker makes conscious choices where the risk taking can be avoided and the risks are not due to entirely uncontrollable circumstances. For speculative risk ventures and investments, business may make various degrees of profits and the company consciously takes the decision to invest.

Question 1 -- Brintons Carpets Ltd.

The development of the Britons Carpets has been dramatic in the last 30 years of its existence -- especially since the 1980s. The company is a traditional and old company that has been doing business for more than 250-year long history. It had been known for its uniqueness in the design and the quality of the carpets that it produced. The product process mix of the company was fairly simple and fairly straightforward. The company based in rural England, produced mostly for exporting. Its main market was the U.S. and the customers were both domestic and commercial establishments like offices and shops. The company sold through a chain of retailers and used its brand as a product differentiator.

Till about the 1980, the product-process model of the company was at the batch level as the company primarily had a narrow product range and it largely sold through retailers in large volumes. This means that the company had a fairly large demand that made the volumes of production higher than the job shop level of the product process matrix. However, it could never go for complete automation due to the unique nature of the production where human extensive human intervention was necessary. None the less, the company had a more or less standardized products that were broadly classified into two categories -- domestic use products and products for commercial establishments. Yet, since volumes were large and assembly line or complete automation was not possible, the company costs of production were significantly high. However, the company still had been able to make satisfactory profits of sale at the rate of about 6% annually. This rate of return was quite extraordinary in the industry.

During the mid-to-late 1980s, significant changes began to happen in the company's market. The market dynamics changed running in several changes all at one time.

The first change that hit the company was the fact that became available in the market that tended to replace the traditional carpets. These included plastic floorings and rugs and carpets like products made from other materials that were cheaper to produce and cheaper in comparison to the traditional carpets that Brintons Carpets offered. At the same time the domestic market in the UK began to shrink. This was due to a slowdown in building activity which meant that lesser number of homes and offices were being constructed which could have used Brintons' carpets. Third, the commercial sector started. Moreover, the company was plagued by demands of shorter buying life cycles of products which meant that the company was faced with price pressures.

A fourth important factor was a change in the taste of customers were more and more customized products were being demanded by the customers. The customers wanted unique and increasingly complex designs even in the new markets that the company entered. Catering to these market changes meant that the company had to produce an increased variety of products and the batch size of each type of product decreased. This meant that the company started to incur more costs in production even as the market demanded cheaper products this directly impacted the profit margin and returns of the company. Moreover, the proliferation of alternative products also meant that the volumes were decreasing. Hence the company essentially was in a position where it had to go back to the job shop level in the product process matrix instead of moving forward to a more mechanized process of production. the company started making losses for the first time in its history.

It is obvious that at this stage the company needed to draw up a strategy to combat the rapid and immediate changes that had occurred in the external business environment it has to reorganize itself and set up a new organizational structure and find out a new production strategy where it could cater to the demand for customized products and yet manufacture in batches -- since it was not possible to go in for complete automation given the nature of product and the production process required.

The first change that the company bought in was the change in the corporate outlook towards the production process. Till date, since the company had been producing carpets in batches, the products were more or less standardized and used technology to a greater extent than human intervention. The production strategy was to produce as much as possible in bulk generating products in greater volumes to meet demands.

However, post the middle of 1980s and in the 1990s, the company realized the need to get more customized and started laying emphasis of people rather than on machines. Self-managed teams were set up that were a part of a strive to create a team-lead culture where the focus was on customers and their needs along with empowerment of the customers. This meant that more customized products were being dished out by the company. The company created a corporate culture where employees, working as teams, developed ownership, change in attitude and motivation. Bonus-based system of payment was introduced which was dependent on the overall performance of the team in terms of productivity and quality.

Structured improvement activities were introduced where the employees were included to a greater degree through site and department improvement teams. This gave rise to a culture of continuous improvement in terms of productivity, quality and customer service. Employees met every month to review improvement. Thus the company empowered the customer as well as the employees. As a part of the cost saving drive, the company changed the MRP system and the cost accounting systems to allow for enhance quality and flexibility. This ultimately allowed the company to slowly return back to the path of profit and good return on sale.

The Operations Strategy Matrix

The above analysis of the journey of the company through the years and adapting to the change in external environment indicates the different use of resource and requirement. As the company developed over time the complexity of the operations and the available and the required resources changed.

The initial level of market environment and the demands by the market and its requirements (shown as level y1 in Figure 9.4) were matched by the resources and production of capability the company (x1). However since the middle of 18980s, the company started to be hit a change in the market in changing consumer tastes and appearance of cheap alternatives and a general slowdown n domestic demand thence the market demands changed and is denoted by y3 but the company was not in a position to cater to the changing market requirements as its level of operations resources capability did not increase and which is indicated in the transition from points C to D on the diagram as a shift to the left of the 'line of alignment'.

The company in the middle of 1990s brought in a change in its production strategy that tended to meet the changing market requirements and is indicated by the shift from points D to E. at this stage the company brought in strategic change and invested in teams and people within the company with thrust on flexibility and quality thus meeting increasing demands of customization while augmenting production strategy with reduced cost strategies and enhanced production processes that is denoted by x3 which allowed it meet market requirements of y3.

At this juncture many projects started to fill the company and the company also anticipated possible changes in technology in the future and invested in them. It was a breakthrough innovation that lowered the batch sizes but was yet economical. This is represented by x4 and the future market demand by y5. Y4 denotes the stage where the company could use the present resources and production ability to meet the current market demands. This indicated that even with the 2011 incident and consequent slowdown in demand the company met the market demands as it had a flexible strategy like the closing and shifting of production units to tide the slow down. However ultimately the company kept its operations resource capability at x4 ready to meet the demands post 2011 anticipated to be at y5 which helped the company to get back to profits it made before 2001.

Question 2 -- Operations Strategy analysis of IKEA

The description of the operations management at IKEA as described in the question leaves some scope for improvement especially in relation to the following issues.

The performance objectives of IKEA:

Quality: the company maintains quality by its designing products that are attractive and can be flat packed to ensure smooth delivery.

Speed: this is very important aspect for IKEA as it wants to offer products to customers that can be carried away for a store and customers should not wait to get it delivered. Therefore, speed of delivery is one of the order qualifiers for IKEA

Dependability: company wants to deliver the same experience for customers all around d the world.

Flexibility: this is a problem for IKEA as the company mass produces and sells standardized products that leave little scope for customization. The company sells products off the store which is a unique concept for furniture seller and companies. This is a unique concept for IKEA which has made possible the other unique characteristics. If the company laid emphasis on customization, it could not have achieved speed of delivery. Hence project management strategy of the company leaves little scope for flexibility.

Cost: cost is of prime importance to the company. The project strategy of the company is so designed -- the flat packing and the minimum touch supply chain for examples, which the company is able to cut down on costs. It is among the most important of the project performance objectives.

In respect to the Decision areas:

Capacity: the location of the stores is such that they are placed in suburban areas and are of appropriate size. The warehouses are always attached to the stores and the in time delivery strategy of the company entails that the capacity of the stores and the warehouses is always at the maximum. The design of the stores is such that they give a smooth and effective flow with attendants to help out the customers if so required.

Supply network: the supply network of the company is of critical importance. Since one of the performance objectives of the company is speed and since the company itself produces very little of the products, therefore it has to rely on the huge network of suppliers to efficiently and effectively make products available to the customers. This it does through its wide network of more than 1300 direct suppliers worldwide and 10000 sub-suppliers. The company has strategy of development of long-term relationships and partnering with the suppliers. This is so because the process of creating furniture is long and has a number of processes from acquiring of raw materials to delivery. The elements of speed and dependability that the company values would be lost of the suppliers fail to deliver products in time. Hence the company values supplier relations as one of the major components of its operations management process. This includes creating close relations with suppliers and engaging un supplier development programs.

Process Technology:

The process technology used by IKEA entails the inclusion of the customer in the process. The customer feed backs are used by the company for designing and value addition of its products. The customers are also an integral part of the process of purchase and assembly of the products as they remain at the spot when the assembly of the furniture is done. This gives a sense of empowerment to the customers. Moreover, the company also stresses on quality of the products. The company has its own test houses that conduct regular quality checks of the products to ensure that the brand name and the image of the company is maintained and the customers do not complain about the product. The company believes in zero return policy and hence takes care that it does not compromise with the quality of the product and the technology used in the process. This has helped the company to have an impact on the costs of the products along with flexibility.

Development organization:

The company has a process of continuous development and uses and number of management tools like lean management to better develop the organization. The company is customer centric and hence its processes are targeted to achieve customer satisfaction. For this process the company has attendants at the stores and lays emphasis on after sale service of the products that includes assisting in assembly of the products. Since the company does not want to take back even a single product it sells, therefore its process are completely customer centric and customer oriented. This helps the company in reduction of costs. The company manages to achieve customer satisfaction through the process of constant quality maintenance and development. Hence from the point-of-view of product process matrix and the development and organization aspect, the maintenance of quality and reduction of costs are achieved by the process of development in the organization that the company follows.

Analysis:

The mission of IKEA is to provide furniture to the customers at affordable prices and that are of good quality. The core principles of the company are to achieve its mission through goo duality and economically. One of the core aspects of the operations management at IKEA is to design products that can be easily flat packed so that it is easily transported, stored and assembled. The company operations are such that it can quickly and easily replenish the products that are required by individual warehouse thus utilizing the operation outcome objective of speed. The delivery of quality services to customers and the monitoring and enhancement of the same are also among the core operative issues at the company.

The operations management process at IKEA is based on a simple concept -- 'furniture, if well designed, can be cheap without being ugly'. This forms the basis of the entire operations of the company and the elements of the company products include quality, limited variety, self-assembly, young families in the suburban areas and stores with attached warehouses and plenty of space.

Since all these elements reinforce each other, the costs of the products and the costs of the operations of the company are kept low. Expenses of the company are further kept low by catalogued sales that require fewer sales personnel at the stores. it is possible for IKEA to closely monitor the suppliers as the company has a standardized and focused product line.