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The Importance of Operations Management in Strategy

Dec 19, 2022 | 0 comments

Dec 19, 2022 | Essays | 0 comments

Introduction

Operations management allows managers to apply specific techniques to analyze any aspect of the organization’s production system, thus increasing efficiency. Operations management covers the importance of using fewer resources, thus reducing costs to increase efficiency and profits. For an operations manager, the process involves converting the input of resources (from the raw materials needed to produce goods to service labor) into the outputs (profits and goods for sale). An important milestone in history occurred when researchers went beyond studying how managers can influence organizational behavior to consider how managers can use the external environment to influence the production and delivery process.

There is a common misconception that operations management plays a role or is important only in the manufacturing industry. However, operations management involves considering every step of service or goods provided. As such, it is important even to the service provider industry. In such an industry, the managers are tasked with evaluating each step of service provision to ensure that it maximizes efficiency. In the service industry, efficiency is vital for companies that want to set themselves apart from other service providers. Each step needs to reduce not just the cost but also the time between the order of service and delivery of the same. (Held 2003) indicates that operations management covers the day-to-day running of the hotel. In essence, hotel operations management focuses on using rigorous techniques to help the managers maximize the application of available resources and produce ideal goods and services, increasing the market share and direct profits. This system transforms the way managers handle acquisitions of inputs as well as disposal of the finished products.

Role of Operations Management In Strategy

Cost management: efficiency measures the inputs required to produce a given amount of products and services. The less information required to produce a particular product, the higher the efficiency and the lower the cost of outputs. In essence, the organization becomes more efficient and profitable in terms of income, which is the main goal of strategic management. For example, in 1990, the Japanese automobile industry applied operations management principles to its strategy to reduce the average employee hours required to make a car from 25, as reported in the American industry, to 16.8. The result was a lower purchase cost of Japanese cars, which American rivals still have difficulty duplicating (Heizer and Reiner 2001).

Goods or service quality: one of the goals of strategic management is the production of reliable goods and services. This is the only way to create and maintain a niche in the market. Providing high-quality products creates a brand name reputation for the organization. This enhanced reputation allows the organization to charge a higher price. Operations management not only focuses on cutting the cost of production but also ensuring the system produces the most quality goods and services for the client. Considering the automobile example, the Toyota Company has enjoyed an efficiency-based cost advantage over its American and European competitors. However, it is the high-quality products by the company that has ensured the company earns more money. Customers are willing to pay a premium price for products whose quality is assured.

Improving innovation: anything new or better about how an organization operates results from creativity and innovation. Innovation leads to advances in products, production processes, management systems, and organization strategies. Successful innovation gives organizations a competitive advantage. Once again, Toyota has enjoyed several critical and vital innovations in the automobile industry. Each of these innovations has helped the company achieve superior quality and productivity, the foundation upon which the company’s competitive advantage is built.

Ensuring excellent customer care: an organization that connects with its clients and customers tries to satisfy their needs and ensure that they get exactly what they want from the company. An organization whose strategy ensures that it treats customers better than its rivals provides a valuable service for which customers are almost always willing to pay a higher price (Slack et al., 2010).

In ensuring that the process adds value and lowers the cost of production, operation managers need to find ways of ensuring superior quality while at the same time ensuring efficiency.

Toyota Operation and Production Process

The Toyota manufacturing process is based on the most unique and generic lean manufacturing process. The Toyota production systems bring together the management, build relationships between the suppliers and customers and ensure timely production for the competitive market. The main goals of the TPS are reduction in time for production, reduction of waste in the production process, and improvement of reliability.

Production: on this aspect, the company’s focus for the past decade has been reducing waste. The automobile raw materials in themselves are costly; therefore, wastage would lead to a high cost of production, which translates to a high cost of products.

Time: before the beginning of the new millennium, Toyota managed to cut the amount of time spent by an employee in building a car from 25 to 16.8 (Chopra and Meindl 2007). This has translated to higher production at lower costs.

Transportation: another aspect of the production process that has drawn concern is transportation from the industry to the final consumer. By ensuring transportation and shipping are done in bulk and within the local manufacturing plants, costs are greatly reduced, and delivery efficiency to the consumer is achieved.

Defective products: perhaps the most significant concern for companies is the need to improve and ensure the consistency and reliability of products and services. Although Toyota maintains a lean processing advantage, the main competitive advantage comes from the ability of the process to ensure the reliability the quality of the products.

The just-in-time production system was discovered and implemented in the early 1960s. Over time, the company has centered on ensuring the improvement of the same production system. The system reduces the time it takes from manufacture to final sale through innovative systems. () highlights the importance of continued inventory of the processes regularly. At Toyota, sitting inventory is believed to be waste, costing the company income. The production system ensures that raw materials are available at the right place and time. At the same time, products must be available at the right place, time, and cost to capture a ready market. The quick response allows the company to continue as the leader in the automobile industry despite other European and American companies making concerted efforts to catch up.

The Three E’s

All amount of planning and strategizing is directed towards ensuring effectiveness and efficiency in the production system. All this must be achieved while maintaining the economics, that is, the cost of production at its lowest. The organization is focused on providing the services and goods that customers desire at a price that is attractive to the customers.

Economies: are the cost advantages that are associated with operations in a business. Economies result from factors such as manufacturing products in large quantities, buying supplies and raw materials in bulk, and making more effective use of resources than competitors. This means fully utilizing the skills of employees and the knowledge they pose to reduce the cost of production. (Bhadur 2008) states that managers must decide the feasibility of all alternative production processes and whether such alternatives can be achieved while maintaining or increasing the profit level, as is the goal of performing business. Managers often analyze to determine which alternatives have the best net financial payoff.

Efficiency: efficiency measures how well resources available to the company are used to achieve the goals of the same organization. Organizations can only be efficient when managers reduce the number of resources input to the production process (for example, labor and raw materials). Efficiency also speaks to the time needed to produce a given or desired output of goods and services. For example, consumers have been more concerned about healthy diets. In response, McDonald, the most popular French fries outlet, has developed a more efficient fryer that reduces the amount of oil used to cook the fries and ensures faster production and cooking of the fries. The responsibility in operations management is to ensure that an organization and all the members of the organization perform efficiently on all activities required to provide goods and services to customers.

Effectiveness: the appropriateness of the goals and strategies that managers have selected for the organization to pursue and the degree to which the organizations have succeeded in applying and achieving the same. It is important to set the right goals and strategize ideal ways to meet the same goals. For example, operations managers could easily advise on new goals directed at diversification to expand and increase the target market. According to (Stevenson 2005), the goals of an organization can only be effective if they create a constant flow of innovative ideas that meet the needs of the immediate consumers directly and faster. Effective managers have perfected the art of selecting and choosing the right organizational goals and possess the right skills to utilize resources efficiently. High-performing organizations are often simultaneously effective and efficient.

LOW EFFICIENCY/ HIGH EFFECTIVENESS

The manager chooses the right goals to pursue but lacks the skills to utilize resources to achieve these goals. Result: a product that customers want but is too expensive to buy.

HIGH EFFICIENCY/ HIGH EFFECTIVENESS

The manager chooses the right goals to pursue and has the skills to make good use of resources to achieve these goals. Result: a product that customers want at a price they can afford

LOW EFFICIENCY/ LOW EFFECTIVENESS

The manager chooses the wrong goals and makes poor use of resources. Result: a product that customers do not want.

 

HIGH EFFICIENCY/ LOW EFFECTIVENESS

The manager chooses inappropriate goals but possesses the skills to use the right resources to pursue these goals. Result: a high-quality product that customers do not want

Cost Minimization versus Quality Maximization

The debate on cost versus quality has been in existence for generations. Traditional researchers have often stated that when companies focus more on low quality, they are most likely to compromise the quality of the product. Modern researchers, however, believe that low costs can be achieved without compromising the quality of the products simply through a system of value addition. An organization’s different functions and activities to acquire inputs focus on lower costs. In contrast, the [process of converting the inputs into outputs is focused on generating high-quality products. Given that satisfying customer demands are central to the survival of an organization, an important balance must be created between cost and quality.

According to (Greasley 2008), many companies focus on low-cost production at any cost. This strategy has a major drawback, the top among them being that technological advances may allow rivals to produce goods at lower costs but with higher quality. In addition, rivals could easily mimic the low-cost strategy, making a competitive advantage very short-lived. Further, a company that is so focused on lowering costs becomes fixated on lowering costs that the same company fails to pick up on significant changes such as growing preference for added quality or service, subtle shifts in how buyers use the product and thus get left behind as buyer interests swing to quality, performance and other such features.

Performance Objectives

Cost: researchers have found that cost objectives speak to the variations in unit cost brought about by the number of products produced and the nature of the process employed. When a company is engaged in large-scale production, they have a stronger bargaining front. They can demand low costs regarding raw materials and services they require in production. This, in turn, translates to higher efficiency, which follows through to lower costs in the sale of the products.

Quality: operations management is all about increasing the level of quality. Quality is one aspect of the production process that is relied upon to create an ideal brand name. Achieving high-quality products lowers operating costs because less time and energy are spent on discarded products or fixing mistakes.

Dependability: highly efficient operations systems are reliable. This means that the products do the work they were designed for and directly meet the customer’s demands and requirements.

Speed: Today, companies can win or lose the competitive advantage depending on their speed, that is, how fast they are bringing new products into the market. The idea is for the managers to anticipate the customer needs and create products and services quickly, which solve the needs before the rivals.

Flexibility: to create new and improved products meeting the demands of consumers, companies need to be agile. (Rusell and taylor 2001) State that innovation and change encourage an organization to develop better and more ideal ways to produce and provide goods.

Linear Programming

Linear programming is a system through which managers employ particular sequences that will lead to optimal solutions. In such a case, the managers know that an optimal solution exists to production problems. The manager is either focused on maximizing the quality or minimizing the costs. The manager, therefore, employs the decision-making variables to ensure that they reach an optimum solution. (Robbins and Coulter 2009) indicate that linear programming has the advantage of employing strategies and positive variables and constraint variables, which could easily affect the production process.

Perhaps the greatest challenge in applying linear programming is that the manager must have the mathematical knowledge and skills to apply the same. A lack of application skills only leads to jumbled equations and numbers.

Critical Path Analysis

Critical path analysis is a technique that schedules the critic’s activities which must be completed for the organization to reach its goals and targets of production. Most people imagine critical analysis as a form of narrative or explanatory technique. (Griffin 2005) states that many managers fail when they ignite the importance of mathematical formulas and steps in analyzing the critical path. The mathematical formulas are ideal for understanding the activities in order of priority and how such activities relate to each other in the production process. The essential steps in applying the critical path analysis include the following:

Generating a list of all the activities required to complete the process of production
With each activity listed, there must include a duration within which the activities need to be completed. This improves efficiency in the production process.
The relationship between the activities and how they each depend on each other.
Logical results will, in turn, become the milestones for the production process.

A production process can have several critical paths from the dependencies—the idea for the operations manager to identify the shortest path with the least costs for production. Critical path analysis allows users to select the most profitable and ideal end process. The results of the process allow managers to make a priority of the right activities, which will reduce the wastage of resources. The analysis can also identify crash activities whose time can be significantly reduced and speedily completed without compromising quality.

Operational Planning

Operational planning is how tactical strategies and goals are turned into applicable activities. In an operational plan, the organization can easily identify and put down the steps included in the production process to meet its strategic goals, the costs of the same, and the milestones for each step. (KRAJEWSKI and Ritzman 2002) Unlike popular belief, operational plans are not separate but draw inspiration directly from the strategic plan. The operation plan is the strategic plan translated into something workable and applicable. Like the plan, it contains clear objectives, the activities associated with each objective, the ways to maintain high standards, and the desired outcomes or results from each activity.

(Render and Stair 1997) cite that monitoring the activities is vital to ensure that the operating plan remains in positive progress. Monitoring also ensures that any challenges are quickly dealt with.

Application of the operational management

Operational outcomes for the Toyota Company

To become a global authority on scientific and advanced technology in the automobile industry. The automobile industry continues to change; advancements in technology are quickly changing the needs and desires of consumers. Toyota intends to remain at the top of the industry by taking charge of innovations and spearheading research in the industry.
To ensure timely delivery of high-quality products. Perhaps the most important aspect of the Toyota Company is the high-quality products that the company has been known for in the past. However, even with a quality product, the process has been for naught if the product cannot reach the consumer in good time.
To remain a price setter in the industry, ensure cost-effective production processes. In the current global economy, consumers are generally more concerned with the cost of a product. The company aims to ensure that products are quality and affordable for the average consumer.

Quality Management And Operations In Toyota.

Toyota is driven by speed and flexibility that is cost efficient and flexible production lines that can switch between multiple car models to meet changes in customer demand. The quality management techniques of the company have ensured that, for decades, the company has remained at the top of the industry. By 2010, the company enjoyed at least 15% of all global automobile sales, which keeps rising despite efforts by large rivals. The company’s management philosophy is directed at continuously ensuring and finding methods to improve production efficiency to reduce costs while simultaneously increasing quality.

In the 1990s, quality management of the company Toyota led to various visits by researchers and entrepreneurs to understand the nature of such management from Europe and America. The Japanese company has continuously re-invented its management, leaving its rivals trailing behind and scrambling to catch up.

References

Bhadur, R. (2008). Production And Operation Management. Jaipur, India, Book Enclave

Chopra, S., & Meindl, P. (2007). Supply Chain Management: Strategy, Planning, And Operation. Upper Saddle River, N.J., Pearson Prentice Hall.

Greasley, A. (2008). Operations Management. Los Angeles, Sage Publications.

Griffin, R. W. (2005). Management. Boston, Houghton Mifflin Co.

Held, G. (2003). Ethernet Networks Design, Implementation, Operation, Management. London, Wiley

Heizer, J. H., & Render, B. (2001). Operations Management. Upper Saddle River, N.J., Prentice Hall.

Render, B., & Stair, R. M. (1997). Quantitative Analysis For Management. Upper Saddle River, Nj, Prentice Hall.

Robbins, S. P., & Coulter, M. K. (2009). Management. Upper Saddle River, N.J., Pearson Prentice Hall.

Russell, R. S., & Taylor, B. W. (2000). Operations Management: Multimedia Version. Upper Saddle River, N.J., Prentice Hall.

Slack, N., Chambers, S., & Johnston, R. (2010). Operations Management. Harlow, England, Financial Times Prentice Hall.

Stevenson, W. J. (2005). Operations Management. Boston, Mcgraw-Hill.

 

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