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This report is aimed at comparing and contrasting the approaches to operations management in at different types of organisations. Operations management is a core contributor to a firm's success and developing competency is widely recognized as a key factor in determining the strategic and competitive advantage of the firm. The author has chosen two broad categories of organizations i.e. product based and service based to analyse the practises and mutual differences between the approaches. The report begins by identification of different types of operations/transformation process in the chosen organizations and analysis of their suitability and adequacy. This is followed by a critical analysis of principles and concepts in terms of capacity planning, inventory management, supply chain design, performance measures and total quality management. The report concludes with an evaluation of the combination of these factors and its impact on competitiveness, innovation and sustainability of the different types of organizations being studied in this academic exercise.
Operations Management - an overview
Operations management is an important area in managing a firm. It can be defined as the area of management related to design and operation of business processes in production of goods or services. In a nutshell, it is the transformation of resources into product and/or services as depicted in figure 1. The competitive advantage of a firm is directly impacted by the efficiency of utilization of available resources satisfying customer demand. (Slack et al 1995, Voss, 1995)
Figure 1: Operations Management ( from sussex.ac.uk)
Operations management serves the function of managing the process of converting 'inputs' in terms of materials, labor, and energy into 'outputs' in the form of goods and/or services. It is critical to ensure that the strategic direction of the firm is maintained by executing the tactical decisions of resource utilization to ensure that competitive advantage is maintained (Schmenner et al, 1998). A suitable example of efficient operations management is Apple Inc. Apple is a multinational corporation that designs and markets computers and related products and services. The firm manages its operations in a way that it ensures that the demand is met by the supply but at the same time it doesn't need to stock large quantities of products in warehouses (figure 2) i.e. Apple has a fast inventory turn over rate. (Gamet, 2009)
Figure 2: Warehouse solution for a fast inventory turn over organization
Operations Management encompasses a number of theoretical concepts, suitability and application of which varies within and across the organizations (Figure 3). Key factors include but are not limited to capacity planning, inventory management, supply chain design, performance measures and total quality management. In goods based organizations the concepts of inventory, supply chain, quality and capacity planning are highly critical. Where as, in service based organizations factors relating to human resources, performance and quality management are given prime importance. (Bayraktar et al, 2007)
Figure 3: Factors in Operations management
The concept of operational strategies encompasses the plans for ordering raw material, converting them to finished product, storing and selling to the customer. Its implementation is often mismanaged in the fast changing environment in the highly globalized markets at present. The management problems in the area of operations management comprise of quantitative, social, technical issues and their complex mixtures (Liet al, 2000) Quantitative problems may include factors relating to planning, critical path analysis, supply chain management etc. Technical issues may consist of factors relating to automation, optimization, scheduling etc. Social factors may include human resource management, outsourcing etc. It is worth noting that these issues are not isolated and independent of each other but they affect the effectiveness of the overall operations management in the business. Therefore it is essential to manage these problem areas to ensure that the overall operations management is not impacted adversely by these factors. To stay competitive a business needs to evolve so as to ensure that alternative course of actions can be adopted as per the available resources while effectively managing change (Volberda, 1999).
The Human resources i.e. people in an organization are extremely important in operations, process and performance management process. The success of an organization is directly proportional to the success and satisfaction of its employees. Therefore from an operational point of view it is important for the business to employ and retain the right people for growth, profitability and sustainable business (Pfeffer, 1998).
Analysis of operations process in different types of Organizations
To understand how operations differ in different types of organization the case of an Aircraft manufacturer versus an airline operator is considered. The basis of this analysis is competitive priority and marketing strategy. The different types of operations process in these organizations will be identified and their adequacy to meet the customers' needs assessed to understand the key factors of operations management.
The very first and the most basic difference in the organizations chosen in this case study is that the aircraft manufacturer deals in the production of aircrafts and allied services for its customers while the airline operator deals solely in the provision of logistic services. For the purpose of simplicity and ease of understanding, the author has considered only the production of aircraft and provision of logistics to mark a clear distinction between goods based and services based organizations. To maintain competitive advantage both types of companies need to ensure that their operations are managed efficiently for keeping the costs under control and thereby offering the goods and services to their customers at competitive rate while ensuring maximum profitability (Frohlich et al, 2002).
The aircraft manufacturer invests heavily in research and design as it needs to 'do it right the very first time'. Due to the scale of operation, the various functions are distributed globally, thus efficient inventory, capacity and supply chain management are essential. Total quality management and performance are also needed to maintain the competitive and marketing advantage (Chow, 2002). The airline operator on the other hand relies on the aircraft supplied by the manufacturer to provide service to its customers. The operator doesn't need to maintain an inventory of planes but it has to ensure that it utilizes its capacity to maximum possible for providing competitive fares to its customers. The performance metrics for the airline are different as it has to ensure timely flight operation which again is essential from the marketing strategy point of view (Rae, 2001).
The adequacy and suitability of the key theoretical principles and concepts in operations management are discussed in the next section of this case study.
Evaluation of Operation Management concepts in different Organizations
As discussed in the previous sections of this report, Operation Management is a key function in organizations whether they are product based or service based. In this section we look at the operations management practices in these industries.
Product Based Industries
We take a look at the operations management practices in a manufacturing company. These practices include utilization of techniques such as Kaizen, Just in Time, Kanban etc for managing operations. Inventory management and capacity planning are of prime importance to ensure that the raw materials and finished goods are maintained at optimum levels. Thus, various functions within the organization interact with the Operation Management function (Slack et al, 2007). The engineering or technical function interacts in the space of understanding process needs and analyzing the new options available. The Product development function deals with understanding of capabilities and constraints as well as managing and introducing products. The marketing function deals with understanding of market requirements. The information technology function deals with provision of systems for design, planning, control and improvement. The Human resource function interacts in understanding the recruitment, development and training needs as well as employee welfare. The Accounting and finance division deals with cashflow and financial analysis of performance and decisions. Thus it can be noted that operations management sits in the centre of the various functions and thus is essential for the sustainability and growth of the organization (as shown in figure 4).
Figure 4: Positioning of Operations Management in an organizations business functions.
Service Based Industries
Efficient 'Operations Management' is equally important in service industry. As the inputs in service industry are intangible human resources and intellect the operations management challenges are different. Techniques such as 'Agile development', collaborative and distributed working are key factors in maintaining the competitive advantage and sustainability. (Johnston, 1999) Like manufacturing, various functions within the organization interact with the Operation Management function. The interactions and interfaces are similar but the relative functions vary due to the nature of industry. The technical function operates in the space of understanding process needs, maintaining intellectual property and analyzing the new options. The Service development function deals with understanding of human resources capabilities and constraints as well as managing and introducing products. The information technology function is of great importance as it forms the backbone of the modern service industry. The relative roles of marketing, human resource and finance function remain the same.
Integrated Products and Services
This is a new and emerging industry segment, which has been pioneered by industry veterans like Rolls Royce. A fundamental shift is occurring at the firm which is moving away from selling products to the provision of services. Instead of selling engines and then providing maintenance contracts, the company is now offering 'power by the hour' contracts. Under this new system, it leases engines to airlines while remaining responsible for their maintenance. In this sector, lower costs are achievable only by applying service experience of the existing products in the design of next generation of products. (Anon, cam.ac.uk, 2011)
Impact on competitiveness, innovation and sustainability
Effective operations management practises are vital for maintaining competitive advantage, innovating in the market and sustainability of the organization. History is filled with examples of firms that employed novel operations management practises and succeeded in creating a niche of their own in the market space. A prominent example is the 'Ford Assembly Line'. The assembly line was not the brainchild of Henry Ford but he simply adopted and implemented it in a way that mass production of cars became possible. By implementing the 'Moving Assembly Line', Ford was able to bring production costs to an all time low and at the same time fuel the competition so much that many low volume competitors had to close shop (Womack et al, 1990).
A more modern example is of Toyota which has revolutionized the manufacturing industry by pioneering and/or implementing systems like Lean, Six-Sigma, Kaizen, Just in Time to name a few. These systems were conceived primarily due to numerous constraints presented to Toyota in its home country, Japan, where land and resources were scarce and expensive (Smith, 2003). Employing these operations management practises has enabled Toyota to become the number one automobile manufacturer in the world, conquering Asian, African, European and American Markets alike.
In the Services domain, operations management is playing an equally important role. Due to the differences in the basic nature of end product, the principles and their implementation differs in the domain of operations management. The input in service industry is intellect rather than raw materials. Therefore concepts like inventory management which is a key component in manufacturing operations management does not apply to services. Methodologies like agile development, distributed and collaborative working are of greater importance in service industry (Coram, 2005).
International Business Machines (IBM), which is one the world's oldest services based firms is a pioneer in employing market leading operations management practises in this industry. It makes uses of innovative tools to manage visibility, control and automation needed to deliver quality service, managing compliance and risk, and maximizing return on investments. It also provides software and implementation to firms operating in manufacturing as well as in services space (Johnston, 1999).
Operations Management is a key business process in any organization, whether it deals in products or in services. The principles or concepts of operations management and their implementation differ in these industries. Manufacturing industries rely on inventory management, capacity planning and production optimization techniques to innovate, maintain competitive advantage and safeguard sustainability. Service industry relies more on efficient utilization of its human resources and technology backbone for its operations management practices. In recent times it has been seen that a clear distinction between products and service industry is blurring and most businesses now offer a combination of products and services to their customers. This trend is even evident in more traditional manufacturing industries such as Rolls Royce which is moving away from selling products to offering 'power by hour' contracts in the form of leases. Thus "integrated products and services" is clearly emerging as a unified entity. Operations management will prove to be an integral business process and a key differentiator between leaders and followers in these changing times.
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