Operations & Supply Chain Management Across Organization & Corporate Strategy
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Transcript of Operations & Supply Chain Management Across Organization & Corporate Strategy
Operations & Supply Chain Management across Organization & Corporate Strategy
Table of ContentsACKNOWLEDGEMENT...................................................................................................3
Operation Management.......................................................................................................4
Major Areas of Operation Management..........................................................................5
Product design and Process.........................................................................................6
Quality Management...................................................................................................7
Capacity planning and facility location.......................................................................7
Inventory......................................................................................................................8
Supply Chain Management..........................................................................................8
Break-Even Analysis...................................................................................................8
Cost breakdown of a manufactured good....................................................................9
Just-in-time..................................................................................................................9
Project Management....................................................................................................9
Schedule Management...............................................................................................10
Characteristics of Products........................................................................................10
Strategy..............................................................................................................................11
Corporate level strategy.................................................................................................11
Business level strategy...................................................................................................13
Functional level strategy................................................................................................13
Operations and Strategy.....................................................................................................13
Structural decisions............................................................................................................17
Organization Strategy........................................................................................................17
Operations Strategy...........................................................................................................18
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Operations & Supply Chain Management across Organization & Corporate Strategy
Competitive Priorities........................................................................................................20
Cost and/or price........................................................................................................20
Quality and dependability..........................................................................................20
Performance...............................................................................................................20
Delivery.....................................................................................................................20
Flexibility...................................................................................................................21
Innovativeness...........................................................................................................21
Decisions, Operations & Technology Management..........................................................21
Conclusion.........................................................................................................................23
References..........................................................................................................................25
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ACKNOWLEDGEMENT
We dedicate our effort to our teacher (Engr. Imran Iqbal) who guided us and helped us in
the preparation of this manual. Because we think that without his guidance it was almost
impossible to create this report. Secondly, we dedicate this effort to our parents as they
pray for our success and we did not able to do that without their prayers.
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Operation Management
The vital role of Operation Management is the planning and decision making. Most
decisions involve many possible alternatives that can have quite different impacts on
costs or profits. Operation management chooses the most-appropriate course of action in
decision making. From running day to day operations of business, in this capacity, the
operation management exerts considerable degree of authority as it is broader than
production management which merely provides goods or manufactured articles.
The difference between goods and services is broad and diverse. Operation Management
is decisive where as Production Management is crucial. It is a system which uses
resources to convert inputs into outputs in the use of goods or services. Operations
management is the power of designing, establishing, planning and running, controlling,
maintaining and improvising such systems.
The key decisions are taken by the operation management at all levels. As the production
of such systems constitutes both goods and services, this establishes operations
management as a subject of action and decisions. Operation management develops and
applies the techniques and takes tactical decisions from planning to production, from
designing to processing, from quality to quantity, from recruiting to training, a system
which enables the efficiency and effectiveness of an organization.
The decisions in Operation Management do require proper analysis and evaluation and a
strategy to follow at all levels.
Operation Management has changed dramatically the strategic approach in which it
operates due to globalized competition. Battles against global competition and shortened
product life cycles have developed new pressures as the challenges of meeting customer’s
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expectations have become even tougher because of their grown market knowledge and
their more complex and sophisticated needs and trends that are difficult to track.
There are different ways and tools to handle these decisions. Like the use of different
methods and models, product design and processes, qualitative management, supply
chain management, just in the time, schedule management, establishing priorities and
systematic approach. Operation management acts like an engine that generates wealth for
the organization strengthening the global economy. At the same time it provides
customers with better services, quality products and above all customer satisfaction.
Major Areas of Operation Management
Operation management is responsible for making decisions in eight major areas of goods
and services.
Product design and Process
Quality management
Capacity planning and facility location
Inventory
Supply Chain Management
Break-Even Analysis
Just-in-time
Project Management
Schedule Management
All these areas of operation management are connected with each other directly or
indirectly and play a major role in establishing successful operating systems. Operations
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Management implement the needs and application of decisions for an organisation. These
decisions must be understood with a reflection of how the system operates its inputs and
its control methods or output required. These decisions have ongoing interactions within
the environment. These are unstable with diverse output as it is known to change. Making
decisions are an essential component of operations. As all operations managers are
responsible for making decisions, which makes it the main focus point in operations.
Function Operations is one of the three leading basic functions of the company including
marketing and finance. In general, the generic term operations refer to the function that
produces goods or services. Thus by separating operations out in this manner is not only
useful for analyzing decision making and assigning responsibilities, but also to integrate
the business by considering the cross-functional nature of decision making in the firm.
The operations managers plan and manage the production process. This process view not
only provides a common ground for defining service and manufacturing operations as
transformation processes but is also a strong method for design and analysis of
operations.
Product design and Process
Operation Management starts from here that what an organization has to offer and its
target market. As the products generate revenue therefore it's planning and coordination
is extremely valuable. This is done on the basis of market research. Decisions in this class
specify the process or facility used to produce the product or service and the manpower
and skills associated with it. It also includes the decision on the nature of resources and
technology to be used. These decisions involve the quality of equipment and technology
needed. The project designs, the structure of the facilities, and workforce policies are also
beneficial in making such decisions. These decisions have long term effect in nature and
cannot be easily reversed, especially when large capital investment is needed.
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Quality Management
A quality-monitoring system provides lots of emphasis on the operation management and
requires strong organizational support responsible for the quality of goods and services
produced. Quality decisions must guarantee that quality is designed and built into the
product in all stages of operations: high standards must be set, properly trained people,
inspection of the product at all stages, as all managers from all functions must be
concerned with the quality control.
As this is the primary responsibility of all managers at all levels therefore, continuous
quality improvement must be catered. The responsibilities for producing products and
services that meet the defined specifications and standards like efficiency, reliability,
good after-sales service and advice, a unique- selling point.
Quality managers need to engage with other functions in setting the specifications for all
new products as they must know where their product line is in terms of their product
allocation and market growth and defining the levels of customer satisfaction required.
Capacity planning and facility location
Decisions are aimed at providing the total amount of capacity at the right place at the
right time. There are a number of factors which the operation management has to take
into account before making its final decision on where to establish, but the ideal location
is where costs are a minimum. In the long run capacity planning is largely determined by
the size of the facilities provided. Like availability of a trained workforce, staffing levels
in terms of market demand and need to make the stable workforce, number of people in
operations, cost of land and premises. In the short course available capacity must be
allocated for the specific tasks by scheduling number of people, equipment and facilities.
Inventory
Operation management decisions in inventory determines what, when, where and how
much to order. The Inventory management systems are used to manage purchasing of raw
materials, work in process, and the finished goods inventories.
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Managers in inventory determine how much is needed, where to locate the inventory, and
a host of related decisions. They handle the flow of materials within the organization and
within the supply chain.
Supply Chain Management
It is the movement of raw materials into an organization, then processing and movement
of finished goods to the end users. Supply management is a cross functional approach
therefore decisions should focus on the core competencies and flexibilities. The factors of
globalization and flattening world are exerting tremendous pressure on supply chain. An
irregular supply chain can lead to higher costs, lower quality and poor customer service.
To achieve the optimal level of supply chain management the Managers should take
decisions which specifies; due diligence and oversight in planning and forecasting. The
requirement is to focus on ensuring the fair and ethical treatment of all customers and
sharing the forecast with all suppliers. Managers by carefully managing the supply and
distribution network the operation management can be able to reduce costs and offer its
customers products at low prices.
Break-Even Analysis
Managers have to decide how much to produce. For this operation management must
consider that whether the product is making a profit or not and how many products to be
sold in order to break even. The managers have greater role as this decides the future
finances in the form of bank loans as it sees the business has considerable planning.
Break even analysis is necessary in planning, forecasting and decision-making, but it
does have limitations as well. Figures could change due to number of reasons like
seasonal demand, goods going out of fashion, even cost and revenue of the product
changes because of increase in rent or selling price. Therefore managers should analyse
and evaluate and take the decisions accordingly.
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Cost breakdown of a manufactured good
Profit 10%
Supply Chain Cost 20%
Marketing Cost 25%
Manufacturing Cost 45%
Just-in-time
Just in time strategy gives the operation management to improve return on investment,
quality and efficiency and reduce the associated product carrying costs.
They must also keep in mind that waste results from any activities create added cost
without adding any value; it can be an unnecessary movement of materials, accumulation
of excess inventory, and the use of faulty equipments or the use of faulty methods that
require rework. Managers taking just in time decisions will save warehouse space and
cost.
Project Management
Project Managers take decisions in planning and monitoring tasks and resources, control
cost and budgets and identify and resolve issues associated with the project.
To be successful the operation management should undertake the range of competing
requirements for resources. The project managers must retain all levels of operation
management by monitoring current projects in an aggregate form. They can provide the
operation management tools and expertise to make informed decisions that improve the
organization as a whole. Without a single point of project planning and control, decisions
such as resource assignments and issue reorganization that are not effective. For an
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organization to accomplish project management successfully, they must organize the
track for resource allocations throughout the organization.
Schedule Management
Schedule management is one of the most prominent and shared piece of information of
the planning process. The decisions taken by managers within this section with a
reasonable and executable schedule is the far most vital measure of keeping the project
on track.
The procedure for doing each task, tracking the cost and time of each task and deciding
refinery methods will automatically give the optimum level with sophisticated
functionality of the project.
Characteristics of Products
Goods Services
Tangible product Intangible product
Consistent product definition Produced & consumed at same time
Production usually separate from consumption High customer interaction
Can be inventoried Inconsistent product definition
Low customer interaction Often knowledge based
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Operations & Supply Chain Management across Organization & Corporate Strategy
Strategy
The direction and scope of an organization over the long-term, which achieves advantage
in a changing environment through its configuration of resources with the aim of
fulfilling stakeholder expectations.
Strategy can be considered to exist at three levels in an organization.
Corporate level strategy
Corporate level strategy is the highest level of strategy. It sets the long-term direction and
scope for the whole organization. If the organization comprises more than one business
unit, corporate level strategy will be concerned with what those businesses should be,
how resources (e.g. cash) will be allocated between them, and how relationships between
the various business units and between the corporate centre and the business units should
be managed. Organizations often express their strategy.
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STRATEGY KEY LEVEL ISSUES
Corporate • What businesses shall we be in?
• What businesses shall we acquire or
divest?
• How do we allocate resources between
businesses?
• What is the relationship between
businesses?
• What is the relationship between the
centre and the businesses?
Business • How do we compete in this business?
• What is the mission of this business?
• What are the strategic objectives of this
business?
Function • How does the function contribute to the
business strategy?
• What are the strategic objectives of the
function?
• How are resources managed in the
function?
• What technology do we use in the
function?
• What skills are required by workers in the
function?
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Operations & Supply Chain Management across Organization & Corporate Strategy
Business level strategy
Business level strategy is primarily concerned with how a particular business unit should
compete within its industry, and what its strategic aims and objectives should be.
Depending upon the organization’s corporate strategy and the relationship between the
corporate centre and its business units, a business unit’s strategy may be constrained by a
lack of resources or strategic limitations placed upon it by the centre. In single business
organizations, business level strategy is synonymous with corporate level strategy.
Functional level strategy
The bottom level of strategy is that of the individual function (operations, marketing,
finance, etc.) These strategies are concerned with how each function contributes to the
business strategy, what their strategic objectives should be and how they should manage
their resources in pursuit of those objectives.
The remainder of this chapter will consider in more detail what constitutes an operations
strategy and what its relationship is with the other constituents of organizational strategy.
Effective operations strategies need to be consistent and contribute to competitive
advantage.
Operations and Strategy
Strategy in a business organization is essentially about how the organization seeks to
survive and prosper within its environment over the long-term. The decisions and actions
taken within its operations have a direct impact on the basis on which an organization is
able to do this. The way in which an organization secures, deploys and utilizes its
resources will determine the extent to which it can successfully pursue specific
performance objectives.
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Cost: The ability to produce at low cost.
Quality: The ability to produce in accordance with specification and without
error.
Speed: The ability to do things quickly in response to customer demands and
thereby offer short lead times between when a customer orders a product or
service and when they receive it.
Dependability: The ability to deliver products and services in accordance with
promises made to customers.
Flexibility: The ability to change operations. Flexibility can comprise up to four
aspects:
The ability to change the volume of production.
The ability to change the time taken to produce.
The ability to change the mix of different products or services produced.
The ability to innovate and introduce new products and services.
Excelling at one or more of these operations performance objectives can enable an
organization to pursue a business strategy based on a corresponding competitive factor.
These relationships are outlined in the Table below. However, it is important to note that
the success of any particular business strategy depends not only on the ability of
operations to achieve excellence in the appropriate performance objectives, but crucially
on customers valuing the chosen competitive factors on which the business strategy is
based. Matching operations excellence to customer requirements lies at the heart of any
operations based strategy.
It is unlikely that any single organization can excel simultaneously at all of the five
operations performance objectives. Trying to do so is likely to lead to confusion if
operations mangers pursue different objectives at different times.
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This lack of clarity is likely to lead to suboptimal performance and result in a failure to
excel in any of the operations performance objectives. Consequently, organizations need
to choose which performance objectives they will give priority to. This may result in
having to ‘trade-off’ less than excellent performance in one aspect of operations in order
to achieve excellence in another. The concept of trade-off in operations objectives was
first proposed many years ago by Skinner (1969). He argued that operations could not be
‘all things to all people’. What was needed was to identify a single goal or ‘task’ for
operations; a clear set of competitive priorities to act as the objective. The task would
then act as the criterion against which all decisions and actions in operations could be
judged. The airline EasyJet offers an example of a company that has a clearly defined
task for its operations, namely achieving the lowest possible operating costs.
It is worth noting, that some operations management scholars reject the concept of the
trade-off. They point to the ability of some organizations to outperform their competitors
on multiple dimensions. They appear to have better quality, greater dependability and a
faster response to changing market conditions and lower costs. Ferdows and de Meyer
(1990) argue that certain operational capabilities enhance one another, enabling
operations excellence to be built in a cumulative fashion. In their ‘model of operations
excellence’, they maintain that there is an ideal sequence in which operational capabilities
should be developed. The starting point, the base of the sandcone is excellence in quality.
On this should be built excellence in dependability, then flexibility (which they take to
include speed), then cost. They emphasize that efforts to further enhance quality should
continue whilst commencing efforts to build dependability. Similarly, actions on quality
and dependability need to continue whilst building flexibility. Finally efforts to reduce
costs take place alongside continuing efforts to improve quality, dependability and
flexibility. They claim that operational capabilities developed in this way are more likely
to endure than individual capabilities developed at the expense of others.
Excellent Operation Performance in… Give the Ability to Compete on…
Cost Low price
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Quality High quality
Speed Fast delivery
Dependability Reliable delivery
Flexibility Frequent new products/services
Wide range of products/services
Changing the volume of product/service
deliveries
Changing the timing of product/service
deliveries
Model of Operations Excellence
Structural decisions
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Structural decisions often involve major capital investment decisions, which once made
will set the direction of operations for many years to come. They invariably impact the
resources and capabilities of an organization, determining its potential future output. It
may be prohibitively expensive to change such decisions once implemented, and hence
these must be considered to be truly strategic decisions for the organization. It may be
much easier to change the organization’s marketing strategy (e.g. its target markets, or its
promotional activities) than it is to change its operations strategy with respect to the
structural decision areas.
Infrastructure decision areas comprise:
Planning and Control: the systems used for planning and controlling operations.
Quality: quality management policies and practices.
Work Organization: organizational structures, responsibilities and
accountabilities in operations.
Human Resources: recruitment and selection, training and development,
management style.
New Product Development: the systems and procedures used to develop and
design new products and services.
Performance Measurement: financial and non-financial performance
management and its linkage to recognition and reward systems.
Organization Strategy
Typical steps in setting an organization's strategy:
1. Establishing Goals
2. Market and Competitive Analysis
3. Identification of Products, Markets and Competitive Priorities
4. Establishment of Policy Guidelines and Constraints
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Operations Strategy
Once the organization has a clear picture of where it is heading the operations strategy
can be addressed.
Purpose - To support the organization strategy.
Operations can be used as a Competitive Weapon
By excelling in one or two key areas of operations a company may gain an edge over its
competition.
All business organizations are concerned with how they will survive and prosper in the
future. A business strategy is often thought of as a plan or set of intentions that will set
the long-term direction of the actions that are needed to ensure future organizational
success. However, no matter how grand the plan, or how noble the intention, an
organization’s strategy can only become a meaningful reality, in practice, if it is
operationally enacted. An organization’s operations are strategically important precisely
because most organizational activity comprises the day-to-day activities within the
operations function. It is the myriad of daily actions of operations, when considered in
their totality that constitute the organization’s long-term strategic direction.
The relationship between an organization’s strategy and its operations is a key
determinant of its ability to achieve long-term success or even survival. Organizational
success is only likely to result if short-term operations activities are consistent with long-
term strategic intentions and make a contribution to competitive advantage.
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Operations & Supply Chain Management across Organization & Corporate Strategy
The relationship between operations and the other business functions is similarly
important. The objective of the operations function is to produce the goods and services
required by customers whilst managing resources as efficiently as possible. This can lead
to conflicts within an organization. Conflicts between the operations and the marketing
functions are likely to centre on the desire of marketing to ensure that operations
concentrate on satisfying customers. Whilst this may seem desirable, marketing will
usually want operations to be able to meet customer needs under any circumstances. This
is likely to lead to demands to produce greater volumes, more variety, higher quality, a
faster response, and so on, all of which are likely to lead to less efficient operations.
Conflicts between the operations and the accounting and finance functions, on the other
hand, are likely to centre on the desire of accounting and finance to want operations to
manage resources as efficiently as possible. This will tend to pull operations in exactly
the opposite direction of that desired by marketing. Conflicts between operations and the
human resource management function are likely to centre on issues of recruitment,
selection, training, management and the reward of those employed within operations. For
example, operations managers may want to vary organization-wide policies in order to
meet local needs; a move likely to be resisted by human resource managers. The
operations function lies at the heart of any organization and interacts with all the other
functions. As such, achieving agreement about what decision areas lie within the remit of
operations, and what should be the basis of decision-making within operations is an
essential part of ensuring the consistency of action over time necessary for a successful
organizational strategy.
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Operations & Supply Chain Management across Organization & Corporate Strategy
Competitive Priorities
Competitive priorities are the elements in which operations must excel in order to support
corporate strategy.
A company cannot excel on all dimensions and must select the ones most important to
its operations and organizational strategy.
Cost and/or price
The production and distribution of a product or service with a minimum of
expenses or
Wasted resources
Low cost production and distribution
Low price product or service
Quality and dependability
producing a product which meets (or exceeds) customer expectations for quality
providing
consistent quality ("dependability")
Performance
product features
high-performance design allows product to do things that other products cannot
Delivery
the ability to meet requested and promised delivery schedules
short lead time or fast delivery ("speed")
on-time delivery ("reliability")
speed in developing and introducing new products or services
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Operations & Supply Chain Management across Organization & Corporate Strategy
Flexibility
The ability to respond to rapid changes in customer demand and requirements for existing
products or services
product flexibility - quickly introduce new products or ability to make rapid design
changes to existing products
process flexibility ("volume flexibility")
Innovativeness
Ability to introduce and incorporate new ideas into products and processes.
Decisions, Operations & Technology Management
The Decisions, Operations and Technology Management (DOTM) area focuses on
operations management in the service and manufacturing sectors as the primary means
for executing strategy, emphasizes the critical importance of operations to the firm's
competitive success and explores the connections at the firm level to other key
organizational functions such as design, finance and marketing. Based on foundational
concepts and tools from economics, quantitative methods and information technology,
DOTM seeks to combine the process view of operations with analytical approaches in
conducting research and preparing students for a variety of career opportunities in
consulting, financial services, high-technology, manufacturing, retail and entrepreneurial
ventures.
As individuals and in teams, managers are active in a variety of research areas, including:
Contracting And Coordination Problems In Business Networks
Environmental Issues In Business
Game Theory
Management And Design For Information Intensive Industries
New Product Design
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Operations & Supply Chain Management across Organization & Corporate Strategy
Probabilistic And Statistical Models In Marketing And Sports
Process Industry Management
Retail Operations Management
Risk Analysis
Strategy In Manufacturing And Service Operations
Supply Chain Management
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Conclusion
Reducing costs, increasing capacity and efficiencies, improving operating margins, and
enhancing cash flow the Operation Management can develop excellence in business by
taking timely and appropriate decisions. Employers and employees together should strive
for the best and track their business performance versus stretch goals and operating
performance targets.
Time-dependent changes of the nature and design characteristics of the product having
existed at the time of approval may change during the operating conditions of the facility.
These changes are inevitable and should be monitored with parallel programs vital for
Global competition and customers expectations. On the other hand, changes have to be
observed and adapted which appear in spite of the design, production and operation.
Product managers should always consider that the product should be design in such a way
as not to be expensive to be a quality product. It is always better to detect errors as they
occur rather than trying to discover the fault after the product is developed. It has to meet
the quality expectations of the customers, so that they feel they have value for money.
Capacity and Facility location decisions are highly judgemental as they are the key
component in terms of the distribution system. Both qualitative and quantitative factors
should be taken into consideration such as
transportation, market surroundings, location
properties and cost factor related to the
alternative location.
To establish Just in time strategies the steady
flow of production processes to be followed
with improved inventory turnover; by product
quality and by reduction in production and
delivery times.
Production & Operation Management Page 23
Results
Reduced inventory levels by 10-15%
Reduced markdown & scrap by 10-15%
Used resources10-20% more efficiently
Improved delivery reliability by 95-95%
Reduced outages to 0-5%
Reduced cycle time by 10-20%
Reduced transportation cost by 10-15%
Operations & Supply Chain Management across Organization & Corporate Strategy
It is necessary to correctly analyze and schedule the project work with in the right amount
of time and efficiency. Scheduling depends on tracks and reports, therefore, by matching
the production volume requirements to the work schedules and average response time
against the production, reduces cost and organizations output is measurably improved.
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Marketing Management, Millenium Edition by Philip Kotler
OPERATIONS MANAGEMENT by Nigel Slack, Stuart Chambers & Robert
Johnston
Production and Operation Management by S. Anil Kumar
Operations Management by Albert Porter
Production & Operation Management Page 25