Operations Management Tools: Forecasting, Strategy & Design

Introduction

This essay is based upon the elements of operations management expressed in Chapters 1, 2, and 3 of the Stevenson text, along with supplementary materials about Johnson & Johnson. The discussion correlates operations management tools to specific types of applications. Some of these tools are related to competitiveness, such as forecasting and design.

Summary of Chapters 1, 2, and 3

Chapter 1 of the Stevenson text begins by discussing operations management, in which a company produces goods and services as its primary output. The operations segment of a company requires the support and input of other divisions, such as finance and sales and marketing. The production of goods and services means that resources are being transformed into finished goods and services at the end of the operations management process. Separate goods and services are frequently produced concurrently, and this production is distinct from the simple delivery of goods and services. Process management consists of one or more actions that transform inputs into outputs. This process must be managed to meet demand, meaning that output has to be regulated through accurate demand forecasting. Along the way, inventory, quality, and cost are managed at every level, from the layout of factories to employee training and beyond.

Much of Chapter 1 describes operations management not just as a discipline but as a career option as well (Stevenson, 2011, pp. 1–20). Johnson & Johnson is a typical example of this type of organization. The company is international in scope, operating and selling in almost every country on the globe. Consumer product lines such as contact lenses, medical devices, and bandages are marketed to the mass consumer market, as are pharmaceutical products ("Johnson & Johnson," 2012). Sound organizational management allows companies like Johnson & Johnson to plan rationally and avoid the short-term, bottom-line thinking that can lead to debacles such as a recent medical fraud lawsuit against the company (Vertuno, 2012).

Chapter 2 of the Stevenson text addresses competitiveness, strategy, and productivity in an era of globalization. Competitiveness involves accounting for consumer wants and needs, price, quality, and advertising and promotion. In the area of products and services, this encompasses cost, design, location of production, quality, quick response, flexibility, and management issues such as inventory and supply chain management, service considerations, and labor issues at all levels. Stevenson also examines the reasons for organizational failure, including neglecting operations strategy, failing to leverage organizational strengths and weaknesses, shortsightedness, over-emphasizing production and service design at the expense of process, insufficient investment in capital and human resources, poor internal communication and cooperation, and failure to account for consumer wants and needs.

The chapter then presents a case study in good operations management by analyzing the success of Amazon. It proceeds to outline a number of strategies and tactics for reaching company goals, such as offshore outsourcing and strategies that increase output volume while lowering per-unit costs. Also mentioned are specialization of product and service lines, limiting service scope to achieve higher quality, creating new products and services, building flexibility in response and customization, improving customer service, and promoting environmental resource sustainability (Stevenson, 2011, pp. 42–47).

Chapter 2 also points out that strategy must be modified when expanding operations overseas, because approaches that worked domestically may not translate abroad. For instance, Walmart discovered that when it opened stores in Japan, its discount reputation backfired because Japanese consumers associated low cost with low quality. In such cases, a SWOT analysis is useful for assessing a company's strengths, weaknesses, opportunities, and threats in a new market. This analysis introduces the concepts of order qualifiers—the minimum level of quality consumers will accept—and order winners, which are the characteristics that cause a company's product or service to be perceived as superior. Technological changes must also be factored in, along with external conditions such as the economic, political, legal, and competitive environment, as well as internal conditions including human resources, facilities and equipment, financial resources, customers, products and services, technology, and suppliers. The chapter also discusses supply chain strategy modifications, sustainability strategies that reduce environmental impact, and global strategies suited to the international nature of the present economy (Stevenson, 2011, p. 51).

Chapter 2 further distinguishes operations strategy—which is narrow in scope and internal to the company—from organizational strategy, which is broader. The two must be linked, though this connection is often neglected in favor of marketing and financial strategies. By the 1980s and 1990s, however, widespread business failures prompted many companies to refocus on operations strategy. A key element of both is strategy formulation: if well designed and executed, these strategies can produce major improvements in operations. They depend heavily on quality and time-based considerations, not merely on efficiency and cost minimization (Stevenson, 2011, pp. 52–54). The remainder of the chapter addresses productivity and the factors that improve it, including multi-factor productivity issues such as labor, material costs, and overhead, leading into the mathematics of forecasting upon which strategies can be based (Stevenson, 2011, pp. 55–71).

Chapter 3 expands upon forecasting mathematics and the way forecasting connects human resources, marketing, management information systems, operations, and product and service design. Even with these tools in place, good forecasting cannot succeed on its own—it must be carefully managed in detail, and managers cannot assume that computers and forecasting models will do the job alone. Features common to all forecasts include timeliness, accuracy, reliability, expression in meaningful financial units, written documentation, ease of understanding and use, and cost-effectiveness. Forecasts drive the supply chain. Forecasting approaches can be either qualitative or quantitative (Stevenson, 2011, pp. 73–77). Specific methods include focus forecasting, based on best past performance, and diffusion forecasting, which draws on historical data, market potential, and word of mouth (Stevenson, 2011, p. 89). Associative forecasting methods link related variables; simple linear regression, for example, relates two variables for analysis (Stevenson, 2011, p. 98). Computer processing can enhance forecasting results. A forecasting strategy must be grounded in both cost and accuracy (Stevenson, 2011, p. 107), and broader organizational strategies can then be built upon the forecasting output (Stevenson, 2011, pp. 109–110).

Conclusion

To sum up, operations and organizational management provides a rational plan to make a company successful and allows management to do its job effectively. This essay has reviewed tools such as forecasting and design, along with competitiveness strategies, SWOT analysis, and supply chain management, that together make sound operations management possible.