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

Production & Operation Management


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



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.



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



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



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.



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.



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.


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.



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



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



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.



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?



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.



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.



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



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



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



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.



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.



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



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



Probabilistic And Statistical Models In Marketing And Sports

Process Industry Management

Retail Operations Management

Risk Analysis

Strategy In Manufacturing And Service Operations




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.


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%


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.



References

Alpin, S., Cooper, J., O’Hara, G., Petrucke, F. (2004), GCSE Business Studies

for Edexcel, p40. London, Hodder and Stoughton.

Brindley, B. and Buckley, M. (2008), Business Studies AS & A2 (3rd edn.), p151.

Edinburgh Gate Harlow, Pearson Education Limited.

Chopra, S. and Meindl, P. (2007), Supply Chain Management Strategy,

Planning, & Operation (3rd edn.), p261. Upper Saddle River, New Jersey.

Pearson Education.

Gibbs, R. and Humphries, A. (2009), Strategic Alliances & Marketing

Partnership, p43. London, Kogan Page.

Jeston, J. and Nelis, J. (2006), Business Process Management, p250. Oxford,

Elsevier Ltd

Surridge, M. and Gillespie, A. (2009), AQA Business Studies for A2 (3rd edn.),

p154. London, Hodder Education.

Walsh, C. (1996), Key Management Ratios, p222. Edinburgh Gate Harlow,

Pearson Education Limited.

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


operations & supply chain management across organization & corporate strategy

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