OPERATIONS MANAGEMENT

Operations managementis an area ofmanagementconcerned with overseeing, designing, and controlling the process ofproduction and redesigningbusiness operationsin the production ofgoodsorservices. It involves the responsibility of ensuring thatbusiness operations areefficientin terms of using as few resources as needed, andeffectivein terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms ofraw materials,labor, andenergy) into outputs (in the form of goods and/or services).[1]The relationship of operations management tosenior managementin commercial contexts can be compared to the relationship ofline officersto highest-level senior officers inmilitary science. The highest-level officers shape thestrategyand revise it over time, while the line officers maketacticaldecisions in support of carrying out the strategy. Objectives of Production and Operations ManagementOperations management can significantly contribute to the success of your business by using your available resources to effectively produce products and services in a way that satisfies customers.To do this you must be creative, innovative and energetic in improving processes, products and services.[1]The four main advantages an effective operation can provide to your business include:[2] reducing the costs of producing products and services and being efficient increasing revenue by increasing customer satisfaction through good quality and service reducing the amount of investment that is necessary to produce the required type and quantity of products and services by increasing the effective capacity of the operation providing the basis for future innovation by building a solid base of operations skills and knowledge within the business

The objective of the production management is to produce goods services of right quality and quantity at the right time and right manufacturing cost. 1. RIGHT QUALITY The quality of product is established based upon the customers needs. The right quality is not necessarily best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements. 2. RIGHT QUANTITY The manufacturing organization should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products.3. RIGHT TIME Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective. 4. RIGHT MANUFACTURING COST Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.

A Framework for Managing OperationsManaging operations can be enclosed in a frame of general management function as shown in Fig. 1.3. Operation managers are concerned with planning, organizing, and controlling the activities which affect human behaviour through models. PLANNINGActivities that establishes a course of action and guide future decision-making is planning.The operations manager defines the objectives for the operations subsystem of the organization, and the policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of operations in the organizations overall strategy. It also involves product planning, facility designing and using the conversion process.2.ORGANIZING Activities that establishes a structure of tasks and authority. Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out.CONTROLLINGActivities that assure the actual performance in accordance with planned performance.To ensure that the plans for the operations subsystems are accomplished, the operations manager must exercise control by measuring actual outputs and comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions here.BEHAVIOUROperation managers are concerned with how their efforts to plan, organize, and control affect human behaviour. They also want to know how the behaviour of subordinates can affect managements planning, organizing, and controlling actions. Their interest lies in decision-making behaviour.MODELSAs operation managers plan, organise, and control the conversion process, they encounter many problems and must make many decisions. They can simplify their difficulties using models like aggregate planning models for examining how best to use existing capacity in short-term, break even analysis to identify break even volumes, linear programming and computer simulation for capacity utilisation, decision tree analysis for long-term capacity problem of facility expansion, simple median model for determining best locations of facilities etc.

10 Critical Decision areas of operation management

I. Design of Goods and service- Design of goods and design defines much of the transformation process. The factors of cost, quality and human resources must be made during the stage. Operation management of product and services is also different because due to different characteristic and tangible / intangible feature.

II. Managing Quality. Customer has a very high quality standard nowadays and operation management decision in quality must be clear and strict for its members to understand and comply. It must set a quality, standard and operating procedure to meet customers high expectation.

III. Process and capacity design. Manufacturing of physical products may have higher importance on process and capacity design than services operation. Operation management (product) should decide what process and what capacity will these product requires. Services operation decision on this area is much simpler and it can determine by customers who directly involved in the process. For example, customer will ask tailor to design specific fashion clothes. Capacity design issue is critical for services because it will try to reduce waiting time and avoid lost of sales due to insufficient capacity. For manufacturing, capacity design is based on firms financial capability, forecast for future and market demand.

IV. Location can be an area for operation management to decide and with globalization of business, operation managers too must think global. For physical goods, location selection can be determined by pools of qualified human resources, technology, raw material, access to market and government policy. For services as it is direct to customers, the location is determined by market accessibility or near to customer as possible.

V. Layout design. Material flow, process selection technology used, capacity needs, workers needs, inventory requirement, and capital will influence the decision for layout design. For services such as hotels, beside capacity needs layout also will enhance its attributes and features to the customers.

VI. Human Resources and Job Design Employees is the integral part in the total system design. Operation management must set a policy to set labor standards to ease transition of skills, improvement of knowledge, skills and abilities (KSA), build a balance work and life quality in an effective cost target. For services one extra area operation management should touch, which is customers relationship that they are dealing directly.

VII. Supply Chain Management Decisions that have to take place of what to produce, what material to buy, from where, how is the cost and how is the delivery from supplier to the final end customers in on-time delivery and minimum cost possible. It is more critical in production of goods than services.

VIII. Inventory Decisions on how and where the inventory level to keep long term customers satisfaction, suppliers, material availability for not to disrupt the production, human resources needed for this purpose and important the holding cost from financial perspective. Goods production are more concern because manufacturer may kept raw material, in progress work order and final goods while services is not critical as it is directly produce and consume simultaneously.

IX. Scheduling Efficient way of allocation, control and management of materials, capital goods and human resources to efficiently produce the final goods from the input available. Schedules are more formal in goods production with short, medium and long term planning to accommodate customers demand. For services the demand is more direct and volatile and often concern on human resources and KSA availability to meet current customers needs.

X. Maintenance Decision must be made regarding the desired level of reliability, stability and systems must be established by management to maintain that reliability and stability.

OPERATION STRATEGIES

Aplanofactionimplemented by a firm that describes how they willemploytheirresourcesin theproductionof aproductorservice. Anoperationalstrategy is a necessaryelementfor abusinessand supports the firm'scorporate strategy.Companies and organizations making products and delivering, be it for profit or not for profit rely on a handful of processes to get their products manufactured properly and delivered on time. Each of the process acts as an operation for the company. Operations strategy is to provide an overall direction that serves the framework for carrying out all the organizations functions. Operations strategyis the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy.

What are the main differences between operations strategy and operations management?

The chapter identifies four dimensions on which operations strategy and operations management differ.

Time scale operations management is relatively short to medium term. This will include decisions that affect minute-by-minute, to month-by-month activities. Some operations management decisions will have an impact several years in advance, but most are confined to the shorter term. Operations strategy decisions however are generally focused specifically on the longer term. So whereas operations management is concerned with reacting effectively and efficiently to specific demands from its customers, operations strategy is concerned with making sure that the company has an appropriate capacity and capability to meet its market requirements years into the future.

Level of analysis many operations management decisions are relatively local in their effect. For example, an individual retail store could be concerned with how it manages it inventory levels within its own facilities. Operations strategy tends to be wider in its application and effect. For example, a more strategic view of thinking about inventory is to consider the whole supply network from raw materials through to end consumer and question where inventory should be held in the total network.

Level of aggregation operations management can be relatively detailed. Resources are treated separately and are associated with specific services or products. For example, What kind of customer relationship skills do our checkout operators need? is a detailed operations management decision. Operations strategy can rarely be so detailed. It tends to aggregate different types of resource into one overall unit. For example, What are our overall human resource requirements in our larger superstores? is an important but highly aggregated decision.

Level of abstraction operations management concerns itself mainly with what is immediately recognizable and tangible. So, the retail company might ask itself, How do we improve the procedures which place orders with suppliers? These procedures, systems, information flows and the physical inventory associated with them can all be readily observed. Operations strategy, on the other hand, deals with more abstract issues. For example, Should we develop strategic alliances with a small number of partners? is a question that touches on the very philosophy of the company.

Why is an operations strategy needed?First things first. An operations strategy is not synonymous with a corporate strategy. The key difference is that the operations strategy is a subordinate, yet crucial enabler to the corporate strategy. A corporate strategy is the overall scope and direction of a corporation and the way in which its various business operations work together to achieve particular goals. An operations strategy supports the overall corporate strategy by ensuring the physical assets and organizational resources in the operations domain are aligned with the direction set out in the corporate strategy.

Whereas almost all companies, big and small, have a corporate strategy, few follow a clear operations strategy and it shows. As a company grows, it usually expands its range of products and services as well as the markets it serves. As it grew, the company most likely closely adhered to the corporate strategy or in some cases revised the corporate strategy as new opportunities appeared. Either way, the corporate strategy maintained its role as a key provider of guiding principles for the company. However, the operational structure and capabilities that were built over the same growth period may have been added in an ad hoc fashion in order to keep pace with the growth curve at any cost. In most cases, this is because an operational strategy was nonexistent or simply bypassed in an effort to ensure growth targets were achieved. The typical result is an inefficient and often disjointed operational model.The disadvantages of such a model becomes all too apparent in an economic downturn or when a new competitor appears.The success of a strategy depends on doing many things well - not just a few - and integrating among them." While inefficiencies may have been ok during the early stages of growth, they quickly start to hamper a firm's ability to compete and ultimately its ability to realize its corporate strategy. There are numerous examples of a big company that was the shining start of an industry being unexpectedly usurped by a start up competitor that has developed a new way to achieve the same customer value with few resources.Everyone is familiar with the havoc Amazon.com and Apple's iTunes store have created for the traditional bricks and mortar book and music stores around the world. Spanish clothing retailer Zara has crafted an operations model that is capable of replicating and supplying the latest runway fashion to its stores in less than two weeks. It does this by using many small sewing contractors in Spain rather than huge clothing mills with cheaper labor all the way in Asia.Furthermore, simply looking to "industry best practices" for how you should operate is short sighted and is by no means strategic in nature.A firm's pursuit of best practices is merely an attempt "to develop the capabilities that their fiercest competitors have already mastered". Not only are you simply trying to play catch up in a race you can't win, you leave yourself vulnerable to the new, up-and-coming competitor.Lastly, whether you are a manufacturer, a services firm or anything in between, a sound operations strategy is necessary regardless of the industry you are in. In all cases, a company takes some starting material, changes it in some way that makes it more valuable to a customer and then sells it to that customer. For a manufacturer like Intel, the primary starting material is an ingot of pure silicone. Intel then uses its production facilities and its proprietary knowledge to turn that lump of silicone into a computer processor chip similar to the one powering the machine you are currently using to read this blog. For a service provider such as an employment recruiter or real estate agent, the starting material is information. They take data such as the current market conditions and current offerings on the market and use their expertise to identify possible hiring or buying opportunities for their client. In both cases, the way in which the firm operates (imparts value to the starting material) is a key determiner of the performance of the firm.

Strategy Formulation ProcessStrategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.1. Setting Organizations objectives -The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.2. Evaluating the Organizational Environment -The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors strengths and weaknesses.After identifying its strengths and weaknesses, an organization must keep a track of competitors moves and actions so as to discover probable opportunities of threats to its market or supply sources.3. Setting Quantitative Targets -In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.4. Aiming in context with the divisional plans -In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends.5. Performance Analysis -Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist.6. Choice of Strategy -This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.