Operations management strategy and performance objectives

¶ … 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 3 -- Hagen Style

Hagen Style is faced with a dilemma of sorts -- does it change its operations according to the market requirements or continues to pursue and use its core competency -- excellent packaging qualities.

To come to an appropriate decision, it is necessary to evaluate the strategy decision that the company has to deliberate. These aspects are capacity, supply networks, process technology and development and organization.

Answering these critical components make up the contents of an operations strategy which is the requirement for Hagen style.

On the other hand, the market requirements are the demands and the means that operations functions are faced with due to the market position that the company wants to chose to adopt. It has been observed that market conditions and requirements change faster than the speed at which a company can configure its resources to meet the market demands. Therefore, factors like physical facilities, human resources, available and acquirable technology, organizational structure and system of operation are considerations that can act as inertia or constraint to operation strategy.

However, one critical factor apart from market requirement and those mentioned above is knowledge and competence that a company has acquired which allows it to perform certain functions particularly well. Simply adapting to market requirements can make this knowledge and competency redundant or of no use. Understand the capabilities and attempting to augment on and build upon them and develop them to such a point that they are able to grant a distinctive competitive advantage to the company is an important consideration for the operations function and strategy. This is the operations perspective.

In the case of Hagen Style, it is faced with both the perspectives of operation strategy.

While on one hand, it is losing out on business and customers due to the fast reducing network marketing concept that drives its business. the market has moved to ordering over the internet and companies that once dependent on the networking marketing format are now shifting successfully to sell through retail stores and super markets and through catalogues and the internet.

On the other hand, Hagen Style has very well developed and one of the slickest order fulfillment operations in the world. The company has managed to perfect it through years of investment and improvement. This has become the core competency of the company. If the company adapts to market requirements then it would have to leave redundant its core competencies that include the IT systems, packing lines and dispatch arrangements that are not designed to cope with small orders as would be the case if it adopts a market requirement driven operation strategy. Moreover, its two distribution centers would be left unused.

The options in front of the company:

1) sticking with the existing services with the services it offers to the existing customers using the existing channels and refrain from any new business that involves new channels.

2) adapt to the changing market and change the company process and resources in order to serve the new channels to the market

3) limit or let go of new channels to the market and concentrate on the core competency -- what it does the best

4) strive to develop an operation strategy that can serve all market parts including the existing channels, any form of subcontracted business available from Lafage, the store delivery and the catalogue customers.

Sit is suggested that the company take the fourth option that is available. The company should not let go of its core competency of packaging which it claims is among the best in the world. it is the aspect of its competency that the company can look forward to provide it with a distinct competitive advantage against the rivals in the market. The company cannot also stick to its original operations strategy of network marketing as that market is fast closing down. it cannot also ignore the boom in internet technology used in retail business and retail chain store business. One the other hand the advantages of adapting to the market requirements are cost efficiency and opening up of a wider range of requirements for the company through the new channels.

Hence the company should use the existing infrastructure and operations systems and competency to continue with serving the network marketing business. It should add the business opportunity that is offered by Lafage Cosmetics which can augment the shortfall in the network marketing channel through bulk orders. Moreover, the retail store delivery and the sale through retail chains would also ensure small variety but large packaging orders which can be fulfilled by the existing resources available with the company.

As an operation strategy the company would have to augment the existing packaging lie to cater to smaller singular orders that it would receive through cataloging and the internet. In this manner the company would be able to use its core competency and enhance capacity, develop the organization, maintain and enhance its supply networks and use the process technology available.